[Senate Hearing 117-879]
[From the U.S. Government Publishing Office]
S. Hrg. 117-879
OPPORTUNITIES AND CHALLENGES FOR
TRADE POLICY IN THE DIGITAL ECONOMY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INTERNATIONAL TRADE,
CUSTOMS, AND GLOBAL COMPETITIVENESS
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 30, 2022
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
U.S. GOVERNMENT PUBLISHING OFFICE
56-373--PDF WASHINGTON : 2024
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland RICHARD BURR, North Carolina
SHERROD BROWN, Ohio ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania TIM SCOTT, South Carolina
MARK R. WARNER, Virginia BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
______
Subcommittee on International Trade,
Customs, and Global Competitiveness
THOMAS R. CARPER, Delaware, Chairman
RON WYDEN, Oregon JOHN CORNYN, Texas
DEBBIE STABENOW, Michigan CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland ROB PORTMAN, Ohio
SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado TIM SCOTT, South Carolina
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
CATHERINE CORTEZ MASTO, Nevada BEN SASSE, Nebraska
JOHN BARRASSO, Wyoming
(II)
C O N T E N T S
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OPENING STATEMENTS
Page
Carper, Hon. Thomas R., a U.S. Senator from Delaware, chairman,
Subcommittee on International Trade, Customs, and Global
Competitiveness, Committee on Finance.......................... 1
Cornyn, Hon. John, a U.S. Senator from Texas..................... 4
WITNESSES
Bliss, Christine, president, Coalition of Services Industries
(CSI), Washington, DC.......................................... 6
Feith, David, adjunct senior fellow, Indo-Pacific Security
Program, Center for a New American Security, Washington, DC.... 8
Meltzer, Joshua P., S.J.D., senior fellow, global economy and
development, Brookings Institution, Washington, DC............. 10
Woodall, Patrick, policy and research director, AFL-CIO
Technology Institute, Washington, DC........................... 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bliss, Christine:
Testimony.................................................... 6
Prepared statement........................................... 37
Carper, Hon. Thomas R.:
Opening statement............................................ 1
Prepared statement........................................... 46
Cornyn, Hon. John:
Opening statement............................................ 4
Prepared statement........................................... 47
Feith, David:
Testimony.................................................... 8
Prepared statement........................................... 48
Meltzer, Joshua P., S.J.D.:
Testimony.................................................... 10
Prepared statement........................................... 53
Woodall, Patrick:
Testimony.................................................... 12
Prepared statement........................................... 59
Communications
Center for Fiscal Equity......................................... 75
Computer and Communications Industry Association................. 81
E-Merchants Trade Council, Inc................................... 87
Engine Advocacy.................................................. 91
PEN America...................................................... 93
PILOT Inc........................................................ 94
Public Citizen's Global Trade Watch.............................. 95
(III)
OPPORTUNITIES AND CHALLENGES FOR
TRADE POLICY IN THE DIGITAL ECONOMY
----------
WEDNESDAY, NOVEMBER 30, 2022
U.S. Senate,
Subcommittee on International Trade,
Customs, and Global Competitiveness,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 3:03 p.m.,
in Room SD-215, Dirksen Senate Office Building, Hon. Thomas R.
Carper (chairman of the subcommittee) presiding.
Present: Senators Wyden, Casey, Cortez Masto, Warren,
Grassley, Cornyn, and Young.
Also present: Democratic staff: Evan Giesemann, Staff
Director, Subcommittee on International Trade, Customs, and
Global Competitiveness; Andrew Smith, Legislative Aid for
Senator Carper; and Daniel Kim, Trade Fellow for Senator
Carper. Republican staff: Andrew Cooper, Legislative Assistant
for Senator Cornyn.
OPENING STATEMENT OF HON. THOMAS R. CARPER, A U.S.
SENATOR FROM DELAWARE, CHAIRMAN, SUBCOMMITTEE
ON INTERNATIONAL TRADE, CUSTOMS, AND GLOBAL COM-
PETITIVENESS, COMMITTEE ON FINANCE
Senator Carper. It looks like there is standing room only.
I am delighted to welcome you all here today. It is my pleasure
to sit next to Senator Cornyn, a good friend and a wonderful
colleague.
I will call this hearing to order. This is a subcommittee
of the Senate Finance Committee, and our focus is international
trade; it is Customs; it is global competitiveness as well. And
we thank our witnesses who have joined us. We have four
witnesses who have joined us today, and I want to say a special
``thank you'' to our subcommittee's ranking member--not just
Senator Cornyn but also his staff and our staff and others who
have worked with him on both sides of the aisle to plan this
important hearing on digital trade.
Today's hearing will offer an opportunity for us to answer
not one, not two, but three central questions. The first is--
and this is my favorite question--what is digital trade,
anyway? I remember, Senator Cornyn, many years ago when I was,
I think, chairman of a subcommittee on, I want to say, Banking,
and people were starting to talk about cryptocurrency and this
and that, and I didn't understand it, and my staff did not
understand it, and neither did our colleagues understand it.
This was at least a dozen years ago. So we said, ``Why don't we
hold a hearing?'' And so, we held a hearing on it. And when
staff said, ``Why are you doing it this way?'' we said, ``We
just do not understand it.''
At the end of the hearing, they said, ``Well, do you
understand it now?'' Not really. And there are some people who
do not understand a whole lot about digital trade, why it is
important, what it means.
So the first question we are going to answer here today--
for folks who might be joining us, near or far, the first
question is, what is digital trade, anyway? The second question
is, why is it important to our country? Why is it important to
Americans as well? And finally, how can we work with our
allies, with other trading partners in order to strengthen our
ever-changing digital economy?
Today's hearing will also be the first Senate hearing in
this Congress, I think, to specifically explore the importance
of digital trade. And then we can take this dedicated time in a
bipartisan way--that is the way Senator Cornyn and I like to
work--to dive into what I think is a critical and ever-
important issue with leading experts across our Nation.
When I first started learning about digital trade, I
quickly discovered it is necessary for us to better understand
and appreciate how digital technology and the Internet have
transformed our economy.
I will take a couple of moments to talk about this through
an example. I love examples. I like to explain concepts with
stories, and we are going to try to do that today--and we will
see how it works. But we will provide an example, and we are
going to show you something that we have all come to know well,
and that is smartphones, smartphones. And let me see if I have
mine. I do. And my guess is, for everybody in this room, I
could ask you to show us your smartphone. If you have a
smartphone, why don't you just hold it up if you have one with
you. This is good. Almost all of us--this one lady back here
does not have a smartphone. We will have to get her one. But
smartphones are everywhere in our society. They have them in
prisons for people who should not have them, and that is a
story for another day. It is not in every prison that that
happens, but it is certainly a concern when it does.
But nearly everyone I know, and probably everyone that you
all know, has one. It is almost impossible to imagine our lives
today without them. We use them for just about everything, from
checking work emails, to logging into a Zoom meeting, to
purchasing goods from halfway around the world. Whether it
happens to be booking a hotel in Dover, DE, or Dover, England,
smartphones have made our lives more accessible for just about
everything.
These are just a few examples in our daily lives that show
how digital connectivity can make it easier, faster, less
expensive to trade goods and services across our globe. And
this is all made possible because the Internet has made it
easier for us to share information and data without geographic
barriers.
Without these tangible barriers, digital innovation has
revolutionized nearly every industry across our country and our
economy, ranging from manufacturing to agriculture to financial
services to e-commerce--you name it. As a result, trading goods
and services, with a lot of help from the Internet, has
exploded in recent years.
Just look at the numbers from 2005 to 2019. Real value
added for the U.S. digital economy grew at an annual rate of
more than 5 percent per year, outpacing the 2-percent growth in
the overall economy during those same years. And the pandemic
has spurred digital growth even more, with people staying home
and turning to the Internet to access medical services, to
stream their favorite movies, or book their next vacation in
the First State, or in the Lone Star State, or around the
globe.
And this growth is not just benefiting consumers, it is
also spurring job creation and enabling small businesses to
thrive. The digital economy's small business that sells jewelry
in Delaware, or Texas, or some other place can now sell the
products just about anywhere in the world with ease.
However, it is critical that as we examine the importance
of digital trade for our economies, we must also acknowledge
how digital technologies affect our national security. Right
now, we are witnessing a global battle over the values that
govern the digital economy. Foreign adversaries like China are
using digital technologies to advance authoritarianism and
crack down on freedom of speech and human rights. They are
working overtime to shape the digital economy in a way that
threatens our democratic values and jeopardizes our national
security.
Yet, as Albert Einstein once said--in fact, he used to say
this not just once, but a lot--he used to say, ``In adversity
lies opportunity.'' I say that a lot too. I always give him
credit, but I think that is a great truth. It guides me in my
life, and I suspect Senator Cornyn and a whole lot of other
people in this room as well.
That is exactly what we have before us today: a real
opportunity to set the rules for digital trade that reflect our
values. Those words were true then, ``in adversity lies
opportunity,'' and they are even truer today.
So far, the U.S. has taken a leadership role through
negotiating ambitious digital rules in the USMCA agreement we
have with Canada and Mexico--we used to call it NAFTA--and
through digital trade, through cooperation with Japan. But that
is not enough. Our work cannot stop there.
That is why this past year my staff and I have worked
closely with one of our colleagues from the other side of the
aisle--Senator Young and his staff and other members of this
committee--to introduce a bipartisan, bicameral resolution
advocating for the United States to work with our allies across
the globe to establish forward-looking digital trade policies.
I am also eager to work with the U.S. Trade Representative,
Katherine Tai, and the Biden administration to make progress on
these important issues as they negotiate something called the
Indo-Pacific Economic Framework and other economic engagements
relating to digital trade.
So today, I look forward to hearing from our esteemed panel
of witnesses to pull back the curtain on the importance of
digital trade and how we can work with our Allies in this
country, but especially outside of this country, to advance
thoughtful digital trade policies.
With that, I am happy to turn it over to my wing man on
this committee and others, Senator Cornyn. Thank you.
[The prepared statement of Senator Carper appears in the
appendix.]
OPENING STATEMENT OF HON. JOHN CORNYN,
A U.S. SENATOR FROM TEXAS
Senator Cornyn. Thank you, Mr. Chairman, for organizing
this hearing. And it has been a pleasure, as always, working
with your staff. And thanks to all of our witnesses for being
here and sharing their expertise and knowledge.
I like the three questions that you plan to ask and have
teed up here. This subcommittee has consistently focused on the
threat that China poses to our national security through its
weaponization of trade, contrary to the international rules-
based system that we thought they were joining when they became
part of the WTO.
On that note, I want to express my concerns with regard to
reports that our allies in Europe may retaliate for provisions
of the recently passed Inflation Reduction Act, in the face of
existential challenges posed by the Chinese Communist Party and
its allies in the Russian Federation. A strong relationship
with our partners in Europe is more important than ever.
Unfortunately, legislation passed on a purely party-line
vote like the Inflation Reduction Act has moved us in the wrong
direction. I hope the administration will work to limit the
trade ramifications from this bill with regard to Europe and
our other Allies.
We all know that the results of protectionism helped in the
past to put us into the Great Depression nearly a century ago,
and we simply cannot afford to repeat it or get anywhere near
it.
On this subcommittee, we have advocated for the U.S. to
join the CPTPP. It was a mistake for us to walk away in the
first place. I was with Senator Hagerty, the former Ambassador
to Japan, now a member of the U.S. Senate, and Senator Cardin,
a colleague on the Finance Committee, in Japan recently. Every
single meeting we had with our Japanese Government
counterparts, they mentioned the TPP. And Senator Carper and I
have written and spoken together on what a mistake it was for
us to walk away from that. And my hope would be that at some
point we would get back in the game in Asia with the CPTPP----
Senator Carper. Would my colleague yield for just a moment?
Self-inflicted wound.
Senator Cornyn. Yes.
Senator Carper. That's what I discovered. I'm sorry. Thank
you.
Senator Cornyn. Unfortunately, so far the Biden
administration has refused to reopen negotiations on that
agreement, so we need to look to sectoral-specific free trade
agreements focused, for example, on digital trade, which is
also part of the conversation we had with Ambassador Emanuel in
Japan when we were there.
As each of our colleagues know, free trade agreements
passed through Congress are insulated from domestic political
pressure. They provide long-term certainty for our businesses
and reinforce the key economic relationships that we have with
our friends and allies.
We have also focused on China's use of censorship as a
barrier, to digital trade in particular. We see today how China
is weaponizing its digital infrastructure against its own
citizens for simply protesting in the streets.
One of the first tasks we should explore is how to define
``digital trade,'' which is what Chairman Carper--the question
he raised first, and appropriately so. For everything digital
or virtual, from the cloud to artificial intelligence, there is
obviously an underlying physical element. For digital trade,
that medium is semiconductors.
So maybe we should start by using that physical apparatus
as a starting point for our discussions.
The second area we should explore is how digital trade
agreements help to solidify our relationship with our friends
and allies against the threat posed by the Chinese Communist
Party. So, I believe any digital trade agreement with our
allies and partners should include provisions that incorporate
disciplines on semiconductors as part of it. That includes
things like coordination of semiconductor incentives,
harmonization of our export controls with regard to China, and
supply chain resiliency.
Finally, and most importantly, we should find common areas
of agreement amongst all stakeholders, to include business,
labor, and national security. That includes topics like
preventing data localization and enforced technology transfers.
We should have free and open digital trade facilitation with
clear rules of the road.
For example, we should not be taxing electronic
transmissions between our borders, or forcing data centers to
be located in one nation or another. As with all issues
pertaining to China, that will require a fair amount of
discussion and debate, and even compromise.
So, I look forward to hearing from our witnesses today who
represent a facet of each of those. I would like to welcome Mr.
Feith for the national security perspective, Mr. Woodall for
the labor community, Ms. Bliss from industry, and Dr. Meltzer
from the think tank community that is important to give us the
intellectual firepower we need to make good decisions here in
Congress.
So, thank you all for being here today, and I look forward
to hearing from you.
[The prepared statement of Senator Cornyn appears in the
appendix.]
Senator Carper. Thank you, John.
I would introduce as our first witness Christine Bliss, who
is the president of the Coalition of Services Industries. I
always like introducing the president. My wife will say to me
when I get home tonight, she will say, ``Who did you meet with
today?'' And I will say, ``Well, the president.'' And she will
say, ``In what capacity?'' ``She was a witness before our
committee.'' She will say, ``You mean the Vice President?''
``No, no, the president.''
But anyway, Madam President, we are glad that you are here
and your colleagues with you. You are actually the president of
the Coalition of Services Industries, I am told. And the
Coalition for Services Industries represents the interests of
the American services economy, which employs over 75 percent of
the American workforce and generates some three-quarters of
national economic output. That probably would surprise a lot of
people.
Previously Ms. Bliss served as the Assistant U.S. Trade
Representative for Services, Investment, Telecommunications,
and E-Commerce. She also served in numerous roles in the World
Trade Organization, including the lead negotiator in the DOHA
services negotiation.
Ms. Bliss, you have the floor. Welcome. Thank you for
joining us.
STATEMENT OF CHRISTINE BLISS, PRESIDENT, COALITION OF
SERVICES INDUSTRIES (CSI), WASHINGTON, DC
Ms. Bliss. Thanks very much, Mr. Chairman. And I also
appreciate the participation and comments from Ranking Member
Cornyn.
I appreciate the opportunity to appear before you today and
be part of this distinguished panel of witnesses. I am
Christine Bliss, the president of the Coalition of Services
Industries, a nonprofit association representing U.S. firms on
services and digital trade issues.
Our members include distribution, logistics, financial
services, professional services, and IT services companies,
including manufacturers of consumer technology,
telecommunications equipment, and health and nutrition
products. Our members operate in all 50 States and over 200
countries, and represent both large, medium, and small firms.
The digital economy is not just about benefits to the
information technology sector. And I think too often that
narrow view, and maybe misunderstanding, is out there. So
hopefully we can correct that. The digital economy is essential
to companies, both large and small, and economy-wide, including
manufacturing--and I think, as you mentioned in your opening
remarks, agriculture, health, education, environment,
transportation, logistics, communication, finance,
distribution, media, and entertainment. And it is a major
source of existing and future jobs.
To ensure that all Americans, including more workers, small
businesses, and communities enjoy the benefits of digital
trade, the U.S. must address growing digital protectionism
abroad through high-ambition trade initiatives, particularly in
the Indo-Pacific and Europe, that include binding and
enforceable digital disciplines and remove discriminatory
barriers and promote economic inclusivity.
Working together, Congress, the administration, industry,
labor, farmers, environmental groups, and other stakeholders
can shape a digital policy that is both ambitious and
inclusive.
The digital economy, as you so aptly pointed out in your
opening remarks, touches all aspects of our lives, from texting
friends, to working or shopping online, using digital
technology, services and software on the factory floor; from
design and production, to after-sales and service of autos,
tractors, planes, consumer goods, and other products, to
doctors conducting heart surgery with the aid of digital
services and technology.
In 2021, the digital economy generated $3.7 trillion in
growth output, over 10 percent of total U.S. GDP, and supported
8 million U.S. jobs. Many U.S. jobs, both blue and white
collar, are now requiring digital skills. And it is critical
that workers get the digital training they need to take
advantage of those job opportunities.
Digital trade was and is a key source of resilience during
the pandemic. From 2019 to 2021, digitally traded services
exports increased by $74 billion, while in a number of service
sectors exports actually declined.
Senator Carper. Repeat those numbers again.
Ms. Bliss. So, from 2019 to 2021, digitally traded services
exports increased by $74 billion. And it is notable because, I
think as we know, services exports in a number of sectors
actually declined during that period. And, Mr. Chairman, in
Delaware in 2021, services exports exceeded their 2019 level on
the strength of digitally tradable exports, including financial
and insurance services.
One-third of small businesses state that they would not
have survived the pandemic without access to digital tools.
Cloud services allowed manufacturers to continue their
operations. The health-care industry was able to expand its
reach through telemedicine. Now Optics, a small business in
Indiana, now provides virtual eye exams to patients across the
U.S.
The digital economy also enables proliferation of small
business. Estate Auctions, Inc., a Delaware-based small
business with 14 employees, exported products to 62 countries
using a digital eBay platform. Olaris, a woman-owned life
sciences lab in Boston used AI to develop a noninvasive kidney
transplant test. Marketing for Greatness, a Texas-based email
sole-proprietor digital marketer led the international
expansion of a Fortune 500 company. And Cloud to Street in New
York, a woman-based, woman-owned small business uses digital
tools to analyze flood risk and climate-vulnerable communities
internationally.
Digital services allow small businesses in every single
State to engage in global trade at a large scale. Good digital
trade policy promotes American values like democracy and
freedom, as was reflected in your remarks and Senator Cornyn's
opening remarks. China and other authoritarian regimes are
imposing their own digital rules of the road, which are at odds
with these values and present national security concerns.
Like-minded trade partners should be standing shoulder to
shoulder to defend democratic values through a rules-based
trade system that adheres to longstanding norms of
nondiscrimination and openness.
And we commend you, Mr. Carper, and Senator Young for your
leadership in the resolution you introduced encouraging
cooperation and coordination with allies, and also lifting
digital trade barriers. We think that was incredibly useful.
We must address discriminatory services and digital trade
barriers through strong digital disciplines that include AI
principles, good regulatory practices for digitally enabled
services standards, SME digital capacity building, and worker
digital upscaling.
My written testimony lists CSI-specific recommendations,
and IPEF seems to provide the most immediate opportunity to
create these binding and enforceable rules. And it may also be
a building block toward rejoining CPTPP. And we share the
concerns and views that both you and Senator Cornyn expressed
in that regard.
Congress has an important role to play in shaping these
disciplines, and CSI supports a bipartisan extension of Trade
Promotion Authority.
I thank you for this opportunity, and I look forward to
answering your questions.
[The prepared statement of Ms. Bliss appears in the
appendix.]
Senator Carper. Madam President, thank you for those words.
Now, turning to our next witness, sitting on your left, is
David Feith. David is the senior fellow of the Indo-Pacific
Security Program at the Center for a New American Security. Do
I have that right? Good. Center for a New American Security is
a bipartisan think tank that focuses on developing strong and
smart national security and defense policies.
Prior to his time at the Center for a New American
Security, Mr. Feith served as the U.S. Deputy Assistant
Secretary of State for East Asia and for Pacific Affairs. I am
sure there is a lot more that I could say about you, but we are
going to go on to give you the opportunity to talk.
With that, you have the floor. Welcome. We are glad to see
you. I am looking forward to hearing your testimony.
STATEMENT OF DAVID FEITH, ADJUNCT SENIOR FELLOW,
INDO-PACIFIC SECURITY PROGRAM, CENTER FOR A NEW
AMERICAN SECURITY, WASHINGTON, DC
Mr. Feith. Thank you, Mr. Chairman. Thank you for your
invitation and that of the ranking member, and I thank the
whole subcommittee for this opportunity.
My written statement addresses digital trade and China, and
in particular, the national security problem of China's open
access to American data. It explains that America should not
only work overseas to expand digital trade with our friends,
but also move urgently at home to curb massive unregulated
flows of sensitive data to China.
Now I would like to stress immediate action possible in
three areas. First, to ban TikTok. Second, to begin controlling
exports of Americans' biodata. And third, to implement a
process endorsed by both the previous and current
administrations, but not yet in use to limit U.S. data flows to
China.
Now, in our unfortunately polarized politics, it is a sign
of health that there is strong bipartisan support for
countering China's threats. A major one is China's approach to
digital trade, which is a key element of China's national
security strategy.
China's leader Xi Jinping says that data in the 21st
century is like oil in the 20th century--the critical input for
economic strength and national power. About a decade ago, Xi
declared: ``The vast ocean of data, just like oil resources
during industrialization, contains immense productive power and
opportunities. Whoever controls big data technologies will have
the upper hand.''
Under Xi, the Chinese Communist Party has made a strategic
priority of exploiting data both inside China and around the
world. This includes personal health records, genetic
sequences, and online browsing habits. It includes corporate
trade secrets, supply chain records, and financial accounts.
And it includes the photos, voice recordings, and mapping
imagery pulsing through the world's smartphones--as the
chairman noted--and drones and smart cars.
Data control is also critical for China's global influence
and censorship operations; hence, Beijing's aggressive
regulation of Chinese apps such as TikTok. Through that app,
Beijing harvests massive amounts of American data and transmits
favored messages, gives censorship guidance, and can influence
young Americans in ways that are without precedent for a
foreign power in history.
All this is the stuff of digital trade. Yet there are
effectively no rules governing any of it--not international
trade rules, and not domestic regulations.
My written testimony cites some additional issues, such as
the importance of Japan's admirable initiative in this field
known as Data Free Flow with Trust. But in the time available,
for immediate focus I will note that U.S. policy can prioritize
at least three areas.
First, TikTok, and the TikToks to come. The Biden
administration is reviewing national security dangers posed by
TikTok. Republicans Marco Rubio and Mike Gallagher have urged
legislation to enable a ban. Democratic Senator Mark Warner, a
member of this committee, recently endorsed a TikTok ban in
principle, calling the platform an enormous threat.
The TikTok issue is a test of our seriousness about data
privacy, counterintelligence, election integrity, and
democratic sovereignty. No hostile foreign power is entitled to
control a leading U.S. media platform, and keeping hostile
foreign powers from wielding such influence is a safeguard of
our free speech. But TikTok is also a test for the data threats
still looming on the horizon, like China's ambition to export
metaverse companies to the U.S. market, as it has for social
media.
A second immediate matter: biodata. Clearly, Americans
should protect their health and genomic and medical data to
safeguard both privacy and national security. Yet our laws and
policies do not do this. President Biden has announced measures
to promote domestic biotech, but we still have effectively no
protections regarding exports of biodata.
While we struggle with this, Chinese companies such as WuXi
AppTec and BGI are expanding operations in the United States.
These companies answer to Beijing's party-state and military.
China's access to U.S. health data, and especially DNA,
threatens harms with multigenerational consequences.
Third and finally, the importance of the new regulatory
mechanism known as ICTS. This may be the best tool Washington
has for all these issues. It could address a range of problems,
including, for starters, data centers.
But the Commerce Department has not yet taken enforcement
action against Chinese firms that may be improperly accessing
so-called ``large data repositories,'' despite a 2021 executive
order threatening action. In drones too, the Pentagon has tied
Chinese drone giant DJI to China's military. Yet DJI still
dominates the U.S. commercial market. There are other Chinese
players in the U.S. commercial market, such as Autel. Drones
have not been the subject of any known ICTS enforcement action
or even investigation.
Then there are autonomous vehicles and digital mapping.
Many leading U.S. companies in these fields rely on Chinese
financing and engineering, yet they can freely export sensitive
data about U.S. roads, maps, and critical infrastructure.
ICTS, led by the Commerce Department, has a mandate to
address all these issues--data centers, drones, autonomous
vehicles, and more--but has not yet taken action. This issue
would seem to warrant attention from the White House and the
Congress.
As we have said, digital trade and China's threats to U.S.
security are overlapping fields of bipartisan concern. So, it
is a privilege to appear today. The stakes are very high, and I
thank you for holding the hearing.
[The prepared statement of Mr. Feith appears in the
appendix.]
Senator Carper. And we thank you. Thanks for joining us. It
is very nice to meet you, and welcome.
Our third witness--we have four; three witnesses in person.
Our third witness in person is Dr. Joshua Meltzer, who is a
senior fellow at the Brookings Institution, where his research
focuses on international economic relations and the
intersection of technology and trade policy. Is that right?
Good. Dr. Meltzer also leads the Digital Economy and Trade
Project and co-leads the Forum for Cooperation on Artificial
Intelligence.
Prior to Brookings, he spent 8 years at the Australian
Department of Foreign Affairs and Trade as a trade negotiator
and as a diplomat at the Australian Embassy in Washington, DC.
Are you a native of Australia? Oh, good. Well, Dr. Meltzer,
we are delighted that you are here. The floor is all yours.
Thank you, and welcome.
STATEMENT OF JOSHUA P. MELTZER, S.J.D., SENIOR FELLOW,
GLOBAL ECONOMY AND DEVELOPMENT, BROOKINGS INSTI-
TUTION, WASHINGTON, DC
Dr. Meltzer. Chairman Carper, Ranking Member Cornyn, and
members of the subcommittee, I thank you for the opportunity to
testify today. I am a senior fellow at the Brookings
Institution, where I work on digital trade issues, as well as
on emerging technology such as artificial intelligence.
Today my testimony will address the opportunities of e-
commerce and digital services trade for the U.S., with a focus
on small and medium-sized enterprises. I will also discuss
evolving global AI regulation and how trade policy can support
digital trade consistent with U.S. values and strategic
objectives.
As you noted, Senator, there is no globally agreed
definition of ``digital trade.'' However, it is a term
increasingly used to describe an ecosystem that is more
expansive than e-commerce, and includes cross-border data flows
and how data and digital technology such as cloud computing and
AI enable trade.
Trade agreements now have digital trade chapters instead of
e-commerce chapters that include new commitments, such as not
to prohibit cross-border data flows and required data
localization as a condition for doing business, subject to
GATTs Article XIV style exceptions.
Digital trade chapters aim to encourage regulation that
builds trust in cross-border data flows. Digital trade
commitments can deliver significant economic gains for the U.S.
The 2019 U.S. ITC assessment of the economic impacts of USMCA
found that the digital trade chapter is a key driver of the
economic gains for the U.S. These rules were found to have
significant positive impacts on industries that rely on cross-
border data flows, including for firms in the services'
economy, manufacturing, and agricultural industries.
One aspect of digital trade is e-commerce, which represents
a real opportunity for small businesses to export and reach
customers globally. A key development has been platforms such
as eBay, Amazon, Etsy, Mercado Libre in South America, and
Lazada in Asia, to mention a few.
These platforms solve many of the barriers that have
previously prevented small businesses from exporting by
providing integrated payment solutions, trust mechanisms, cheap
and effective dispute settlement, and links to express delivery
services.
The opportunity for small businesses to engage in digital
trade has been enabled by trade policy. The WTO Trade
Facilitation Agreement reduces the costs of getting goods
through Customs. USMCA raised the de minimis Customs duty
levels in Canada and Mexico, which has led to increased e-
commerce sales. Commitments on electronic signatures and
electronic authentication provide important legal frameworks
that allow for digital cross-border transactions, and
commitments to not restrict data flows and to encourage
interoperability among digital payment systems also enable e-
commerce.
Services exported online are another growth opportunity for
the U.S. The U.S. has been exporting more services than it
imports for over 30 years, and services now comprise around 40
percent of total U.S. trade. But services are an even more
significant share than that. This is because around 30 percent
of U.S. goods exports comprise value-added services used in the
production of goods, the net result being that over 60 percent
of total U.S. exports comprise services. And a lot of these
services can be exported online.
Recent OECD data shows that the U.S. is the world's largest
exporter of digitally deliverable commercial services, over
three times larger than its nearest competitor, Germany, and
2.2 times larger than the UK.
While digital trade is an opportunity for U.S. businesses,
the OECD Digital Services Trade Restrictiveness Index shows
high levels of digital trade restrictions globally. This
includes in countries such as India and Indonesia that are
participating in the Indo-
Pacific Economic Framework negotiations, and the digital trade
restrictions in these countries pale in comparison to China,
which is one of the world's most restrictive digital trade
regimes.
Digital trade also affects access to and the development of
key digital technologies such as AI. Recently, U.S. National
Security Advisor Jake Sullivan identified three families of
technologies including computer-related technology that
includes AI, which he described as ``force multiplied''
throughout the tech ecosystem, where U.S. leadership is needed
from a national security imperative.
While the U.S. is a world leader in AI, many countries are
moving to regulate AI and expand AI R&D cooperation. China,
second only to the U.S. in terms of AI capacity, has begun to
roll out its own AI governance framework, which includes
regulations on the development and deployment of AI algorithms,
as well as increased control over Chinese technology firms
leading in AI development. China is also exporting its model
for AI regulation to other countries in the Indo-Pacific and
globally.
Some countries are now using trade agreements to support AI
specifically, but the U.S. has yet to do so. The U.S. certainly
is the largest and most innovative digital economy that creates
opportunity for digital trade for both small and large
businesses. The U.S. has led development of digital trade rules
in the USMCA and CPTPP, but renewed U.S. leadership is needed
to develop rules that govern digital trade more broadly.
Yet, while the U.S. decides what to do, the world is not
standing still. China is leading the development of rules in
digital trade in RCEP and is seeking to join the CPTPP, where
it will be able to influence the next generation of digital
trade commitments.
The forthcoming IPEF negotiations are the next opportunity
for the U.S. to reengage in the development of digital trade
rules that support economic opportunities for U.S. firms and
workers, and to shape the global context.
Thank you.
[The prepared statement of Dr. Meltzer appears in the
appendix.]
Senator Cornyn. We are in the process of voting, so Senator
Carper stepped out. So I will introduce our final witness, Mr.
Patrick Woodall, the policy and research director at the AFL-
CIO Technology Institute. He also serves as a board member for
the Trade Justice Education Fund, which is a nonprofit that
sponsors public education programs designed to expand awareness
about the worker rights, environmental and climate, and public
health implications of U.S. trade policy. He has been a policy
expert and researcher for 3 decades, advocating for economic
and social justice.
Mr. Woodall, you have the floor.
STATEMENT OF PATRICK WOODALL, POLICY AND RESEARCH
DIRECTOR, AFL-CIO TECHNOLOGY INSTITUTE, WASHING-
TON, DC
Mr. Woodall. Thank you very much, Ranking Member Cornyn,
and Chairman Carper, and members of the committee. It is a
great opportunity to testify today. I am here on behalf of the
AFL-CIO Technology Institute, the AFL-CIO, and the more than 12
million union members working in every State and every sector
of the economy.
The labor movement is deeply interested in international
trade policy. Trade deals have cost millions of manufacturing
and
service-sector jobs, upending the economic security of working
families, and worsening America's economic and racial
inequality. But we are focused on digital trade as well. The
digital discussion frequently sounds like it has no grounding
in the physical world, which Ranking Member Cornyn referred to.
It is Internet-enabled commerce, and big data, and cloud
computing. It is all of those things, but it affects real
workers in the physical world, because cross-border digital
commerce has offshored tens of thousands of U.S. call center
and back-office jobs, and this low-road offshoring has fueled a
digital underclass of gig workers in the developing world that
power artificial intelligence systems. These ghost workers tag
images and code information for low pay, including in India and
the Philippines, which have notoriously poor working conditions
and weak labor laws. And digital trade powers automated
decision-making and algorithmic management software that
increasingly hires, controls, evaluates, monitors, and even
fires workers in the United States.
These technologies can shortchange workers' earnings,
expose workers to unsafe conditions on the job, infringe on the
right to form unions, and exacerbate employment discrimination.
All these workers are directly impacted by global digital
commerce on the job, but they are also impacted at home.
Big tech companies collect, combine, and can modify vast
troves of personal data that compromise everyone's privacy. The
algorithms, the power of social media, have pushed online hate,
spread political disinformation, and harmed the mental health
of young people.
But the existing trade model makes it harder to safeguard
workers, consumers, and society from the known and emerging
downsides of the digital economy.
First, the current digital trade deals grant broad,
unfettered powers to companies to shift data and deploy
software worldwide. These authorities over data and software
are more expansive than for trade rules on physical goods.
Second, the digital trade rules rigidly limit or forbid
government oversight of the technology sector, as well as its
data and its software products. The technology industry appears
to view any oversight, including efforts to safeguard digital
privacy, as illegitimate trade barriers. The digital provisions
almost read like high-tech commandments: thou shalt not limit
cross-border data flows; thou shalt now require any data to be
maintained domestically; thou shalt not look at the source
codes that power software that affects workers and consumers.
Since the 1990s, trade agreements have constrained domestic
governance to curb so-called non-tariff trade barriers.
Longstanding regulatory approaches have been subjected to trade
tests to determine if they are permissible rules or illegal
trade barriers.
At the WTO, fewer than 5 percent of challenged regulations
have been upheld in trade disputes. The stringent regulatory
restrictions in digital trade are fundamentally different
because we are just starting to grapple with meaningful
oversight of these technologies. It will be easier to challenge
efforts to rein in the downside to these technologies as
illegal trade barriers because of our limited legal and
regulatory foundation.
Bipartisan efforts to protect personal data or address
anticompetitive platform practices could run afoul of existing
digital trade language. So the combination of unilateral
corporate powers and narrow regulatory constraints in digital
trade can lock in a largely unregulated technology landscape.
It is time for sort of a strategic reset to create a
worker-centered digital trade policy. This is not a binary
choice between China's Great Firewall and a totally unregulated
technology sector. We must be able to protect personal
information in critical sectors by establishing restrictions on
vulnerable cross-border data flows.
Digital trade deals should encourage rather than deter
government efforts to protect personal data inside and outside
the workplace. Safeguarding critical infrastructure and
personal data not only protects the security of the economy and
people, but it also helps keep good jobs here in the U.S.
We must be able to meaningfully oversee source codes and
algorithms to robustly enforce current labor and employment
laws, and enact new laws to address emerging issues like
electronic workplace surveillance and digital privacy.
The Congress and the public should decide the rules of the
road for technology. It cannot be left up to big tech companies
and international trade tribunals.
Thank you for the opportunity to testify, and I am happy to
answer any questions.
[The prepared statement of Mr. Woodall appears in the
appendix.]
Senator Cornyn. Thank you, Mr. Woodall.
Senator Carper, the chairman, is not back, so I will
proceed with some questions, and I am sure I will turn it over
to him when he returns.
Dr. Meltzer, I am looking at your testimony here. I was not
here for the beginning of the answers to Senator Carper's
questions, but I will just read this.
You say, ``There's no globally agreed definition of digital
trade. However, it is a term increasingly used to describe an
ecosystem that is more expansive than e-commerce, which is
focused on trade in goods and services purchased online.
Digital trade includes the important role of cross-border data
flows and how data and digital technologies such as cloud
computing and artificial intelligence can enable trade.''
Did I read that correctly?
Dr. Meltzer. Yes, Senator.
Senator Cornyn. And let me just ask our other witnesses.
Ms. Bliss, do you agree with that definition? Or do you have
any differences?
Ms. Bliss. No, I do not have differences. And I think that
Dr. Meltzer has adequately described it. And in my written
testimony, we tried to elaborate that, in our digital economy
certainly, are what are referred to as the pipes--the
infrastructure, the fiber-optic cables, the technology that
enables the Internet--and then the platforms, technologies,
software, and services that build onto that to enable the
functioning of the digital economy itself.
And then of course all the various apps that are being
developed and the emerging technologies in that space. And
then, I guess at the core you could say that it is about
electronic transmission of data across the Internet and the
content that is included there. But I would be in agreement.
Senator Cornyn. Mr. Feith, I know you focused on national
security aspects of this issue. Obviously the Internet has
proved to be a boon to businesses and individuals to share
information, and of course we are a free society where people
are free to communicate. But our adversaries, particularly the
People's Republic of China and the Russian Federation, use
information warfare essentially to steal our data, and then to
do everything from engaging in disinformation or active-
measures campaigns like they did in 2016 during the
presidential election.
Talk to me about the benefits of us entering into some
digital trade agreement with our democratic allies, and how
that plays into this sort of split personality when it comes to
digital information in a free society versus autocratic
societies.
Mr. Feith. Thanks, Senator. I think the split personality
point is well put. And I think that some of your definitional
questions, and the answers we have heard, also highlight a
really valuable and important quality of this whole discussion,
which is that some of what makes this difficult and dangerous
as an issue--when it comes to the role of hostile adversary
countries in digital trade and in our domestic digital
economy--is that the nature of so much of digital trade is
unlike the nature of traditional trade that passed in physical
goods by truck and ship and horseback over the years, where
fundamentally there was a structure among nations where the
trade was controlled at borders and arranged between countries
according to agreements.
The Internet was born and then established with none of
that. There was no need to go open any other countries. We all
allowed the Internet to emerge all over the world. And as we
have said, there were enormous benefits to this in matters of
prosperity and quality of life and all the rest.
And yet it caused also the national security challenges
that we face today. In a way completely without analogy to the
physical trade in goods, we have adversary country state actors
and state-backed actors operating in our telecommunications
networks, across our digital economy--meaning in our pipes, in
the platforms of the delivery of these digital goods and
services, and in our politics through the use of platforms like
TikTok and other social media platforms--where not only can
data be harvested, but the export of the censorship and
propaganda objectives of the Chinese Communist Party, for
example, can be done at scale and in a fashion that was simply
impossible in the pre-digital age. And we do not have
mechanisms in our international trade rules, and we really do
not have mechanisms even in our domestic regulation, for
dealing with this.
We have the Committee on Foreign Investment for handling
inbound foreign investment. We have export controls for
licensing and restricting the traditional export overseas of
goods and services and some technologies. We have Federal
procurement restrictions that restrict what Federal departments
and agencies and their contractors can purchase.
But our Federal regulatory structures have traditionally
been just silent on an enormous range of domestic digital
commerce that has international digital trade implications. And
that has to do with what people put on their phones, what
companies do when it comes to their drones or their
surveillance cameras. It has to do with the handling and
sharing overseas of our most absolutely sensitive data, such as
our genomic DNA information.
These things have been effectively untouched by the
traditional tools that we know for national security--you know,
restrictions and approaches to matters of commerce. And that is
partly why we have such a challenge here.
It is also partly why this new ICTS regime represents such
a potentially valuable and important new element of the
national security regulatory mix, because we now have had on
paper the creation of this institution. It is like CFIUS, but
it is for cross-border data flows. And instead of being led by
the Treasury Department, it is led by the Commerce Department.
It was put out initially in the waning period of the last
administration, endorsed in the first months of the current
administration, but it exists only on paper. It has never
actually taken action, not against data centers, not against
drones, not against autonomous vehicles and digital mapping,
and not against anything relating to the biodata-particular
priority. And it would appear that the case for that is really
just very strong and rather overdue.
Senator Cornyn. Thank you.
Senator Carper. I thank my colleague. I think, since I was
off voting, we have been joined by our chairman of the full
committee, Senator Wyden. Welcome. Thank you for joining us.
Catherine Cortez Masto, Catherine, it is wonderful to see you.
Thank you so much for joining us. And also, we are joined by a
new member of our team, Senator Grassley, a new member of the
Senate. [Laughter.] He has been here actually as long--how many
years have you served in the Senate now?
Senator Grassley. Forty-two.
Senator Carper. Forty-two, but who is counting? That is
great. You have seen a lot----
Senator Grassley. It is just a number.
Senator Carper. It is just a number. That is great. Well,
congratulations to both of you on your re-elections, and I am
delighted you were able to join us today.
My first question is pretty easy. Several of our witnesses
have used the term ``ICTS regime.'' People watching us on
television probably have no idea what you are talking about. I
am not very good at acronyms.
How would you, Mr. Feith--how would you explain that to
your grandmother?
Mr. Feith. The unpronounceable acronym happens to stand for
Information and Communications Technology and Services, which
is not how I would begin the explanation for my grandmother,
though.
Senator Carper. Is your grandmother still alive? Is she
still alive? She might be watching us.
Mr. Feith. No, unfortunately not, but we have a daughter
who is named for her, so that is an alternative.
Senator Carper. That is good. The next best thing.
Mr. Feith. This is meant to be a structure inside the U.S.
Government that pulls together expertise from all the relevant
parts of the executive branch--national security departments
and agencies, commercial and economic departments and
agencies--and the intelligence community, in order to assess
the national security implications and risks of all of the
enormous flows of data that could go cross-border, especially
between the United States and the so-called foreign adversary
countries, beginning with China and Russia.
Senator Carper. All right. I think your grandmother would
probably say, ``That's my grandson. I am so proud of him.'' All
right; thanks for doing that.
I have a question, really for all of our witnesses. I think
we will lead off with Ms. Bliss, by asking you to respond to it
initially.
As the leaders of this subcommittee, Senator Cornyn and I
have long advocated for engagement with our allies in the Asia-
Pacific region--you mentioned this--after the previous
administration abandoned multilateral cooperation.
Now, as the Biden administration works to reclaim a seat at
the table with our Indo-Pacific Economic Framework, digital
trade presents a clear opportunity for U.S. leadership in this
critical region.
We know that both our allies and our adversaries in the
region are racing to write the rules of the road on digital
trade, and our allies have been clear that they welcome our
partnership on the digital trade in order to advance our shared
values.
Here is my question for each of you: what specific digital
trade policies should the United States advocate for in the
Indo-Pacific Economic Framework? I will say that again. What
specific digital trade policies should the United States
advocate for in the Indo-
Pacific Economic Framework in order to advance our economic,
security, and geopolitical interests? Ms. Bliss, would you be
our lead-off hitter there? And then Mr. Feith, and then we will
go down the line.
Ms. Bliss. Thank you, Mr. Chairman. And we did supply to
the committee, as an annex, our specific recommendations with
regard to IPEF--and more generally in terms of what we believe
should be included in the digital chapter. But let me highlight
some areas.
That is, we think about the provisions that were included
in the bipartisan USMCA digital chapter, and then building on
that, the U.S. and Japan also looking to some of the
innovations that have been made by our trade partners in the
region. Australia, Singapore, and others provide important new
elements that can be included. At its core--and I think you
have listed this in your resolution--we need to certainly
address cross-border data flows. And I would point out that it
is not the case that there is an absolute allowance of cross-
border data flows in all circumstances. There is provision for
deterrence from that, where there are legitimate public policy
objectives. And that is certainly something that we would want
to see continued.
Too, data localization is pernicious and increasing, and
has wide implications, particularly in respect to challenges
posed by China. And I think it also relates to the data issues
that have been raised here today.
And I also believe that the source code provisions, which
again are not absolute--it is not an absolute prohibition on
mandatory transfer of source code. There are exceptions to that
for law enforcement for not just judicial processes but also
regulators, inspections, and other circumstances. So I just
want to correct the record that that source code provision is
not absolute.
I also want to emphasize the importance of a permanent
moratorium on e-commerce duties, and also new provisions that
we have suggested, including things like AI best practices
principles, which we think can address some of the issues that
have been raised, particularly in Mr. Woodall's testimony, with
regard to concerns about potential abuses of AI in the
workplace.
We also think it is very important that there be a
commitment to worker upscaling in the digital area. We also
think that inclusion of tools for small businesses is
incredibly important. And certainly, greater inclusivity is
very important. And I also should mention addressing the
pernicious problem of censorship that I think is another area
that should be addressed.
Senator Carper. Good. Thank you for that comprehensive
response. My time has expired, and we will come back later in
the hearing, and we will have an opportunity to invite our
other witnesses to respond to the same question.
The next person to recognize for questions is Senator
Grassley, and then Senator Cortez Masto. So, Senator Grassley,
you are up, followed by Senator Cortez Masto.
Senator Grassley. Thank you.
I am going to start with Mr. Feith. We are all concerned
about national security and protecting the data flow, and we
are concerned about consumers, making sure that their
technology is protected. And obviously we think mostly about
the Chinese Communist Party and China generally in this regard.
So my first question is, you have stated the need to ban
TikTok and digital platforms that are similar. Could you
explain why this is necessary?
Mr. Feith. Thank you, Senator. The threats posed by
TikTok--and, as your question suggests, by other platforms, and
there are many that are subject to the same Chinese Communist
Party influence and control and subversion--involve both data
that would flow out of the United States to China, and the data
in a sense that flows from Beijing and its political edicts
into our digital economy.
In that first category, you have the sort of relatively
more commonly recognized data privacy concern, which is that
TikTok is on the phone of 100 million or more Americans. TikTok
in public statements and in congressional testimony has given a
whole range of often contradictory and questionable answers
about how they can possibly keep that data that is on American
phones and in the TikTok app from the Chinese Communist Party,
given the nature of Chinese law.
It would appear completely impossible, because the laws--
including the National Intelligence Law of China, the
Cybersecurity Law of China, more recently the Data Security Law
of China, and others--make absolute the demands of the Chinese
Communist Party to unchecked access to data that touches
Chinese platforms like TikTok. And so the risk of the
harvesting of that data from all the American users is
enormous.
There is also, though, the somewhat less widely recognized
set of risks involving the effect of the export of censorship
from the Chinese Communist Party to the American public when so
much of the American public relies on this platform for news--
news about the world, news about our elections, and possibly
the news in future circumstances that might involve Taiwan,
might involve different actions in which the U.S. and China are
adverse. And the ability of TikTok to be a platform for the
mass manipulation and even mobilization of American users--
dictated by and consistent with the hostile political aims of
the Chinese Communist Party to which TikTok has to answer by
virtue of Chinese law--is a very grave threat.
Senator Grassley. What other countries are there that we
have to worry about getting into Americans' data? Are there
other countries that pose the same problem as China or near
that?
Mr. Feith. There are certainly other countries that pose
similar problems. There would not appear to be any other
country that poses the problems at the magnitude and severity
of China.
I would note, for example, that the Biden administration
put out in June of 2021 an Executive Order on Protecting
Americans' Data From Foreign Adversaries. That ``foreign
adversaries'' category, I believe, pursuant to some regs from
the last administration, affects six countries: China, Russia,
Iran, North Korea, Cuba, and perhaps Venezuela. I would want to
check that, but I believe that is the set of foreign adversary
countries.
Several of the questions we have discussed have mentioned
China and Russia together. Certainly those two would appear to
stand out on the list of six, but even still, there are not
Russian platforms with a presence in the United States anything
like the Chinese platforms. And the Chinese platform concern,
and the Chinese digital economy and digital trade concern, is
hardly limited to TikTok. You know, TikTok's parent company,
ByteDance, has a new virtual reality company, a subsidiary
called PICO, which has ambitions for the U.S. metaverse market
to compete here domestically against Facebook and Apple and all
the others.
There are a wide range of social media payments and other
platforms that come from China. They are widely used because
they are good apps. But they also pose these enormous
challenges that are often difficult for consumers to keep track
of. They are often really only a threat in the aggregate, when
you talk about the aggregate of all of this data and what a
foreign adversary government can do with it.
But that is why it seems to pose these national security
concerns that warrant attention here.
Senator Grassley. My time is up.
Senator Carper. Senator Cortez Masto, you are up. Thanks
for joining us today.
Senator Cortez Masto. Thank you. Thank you for this great
subcommittee hearing, and I appreciate everybody who is
participating today.
Let me, Mr. Feith--is it Faith? Feith?
Mr. Feith. Feith.
Senator Cortez Masto. Mr. Feith. Let me start with you,
because you talked about data harvesting. How long would you
say data harvesting has been going on? How many years?
Mr. Feith. Roughly as long as we have had data.
Senator Cortez Masto. And so, do you think it is too late
to start putting in regulatory regimes to protect, let's just
say, an individual's PII?
Mr. Feith. No. Some harm is irreversible, but a lot of harm
is still ahead of us.
Senator Cortez Masto. And when you are talking about
``harm,'' identify that harm. What does it look like?
Mr. Feith. I think we can talk about it in various ways.
There is the exposure of private information that is of
potential intelligence value.
Senator Cortez Masto. So, national security. That is
something we always would address. But let's talk about
individuals, because one of the things you talked about, which
I am very concerned about--but I am also concerned that it
might be too late--is protections for biodata. We definitely
need to do something, as you have said. But is it too late? I
mean, that information is already out there for many, and you
cannot pull it back. So how would we address that?
Mr. Feith. I think the observation that there have been
transfers here that are harmful and that that harm cannot be
remedied, I would agree with completely, for transfers that
have already happened. And yet I would also be inclined to say
that there are uses of biodata that are currently devised but
are imperfect and will still need to be fed by enormous amounts
of data that companies and governments will seek to ingest over
time. But some will seek to do so in ways that are generally
consistent with democratic values and the rule of law, and some
will do so in the way that the Chinese Community Party
functions.
Preventing the future ingestion of that sort of data over
time for these uses of biodata already devised would seem to be
a major interest of ours. There are also, one would think,
infinite uses of biodata not yet devised that will come about
in the future----
Senator Cortez Masto. That we do not even contemplate. With
new technology and everything that is out there, it will be
there. I agree with you. I agree with you. And I think this is
part of our challenge: trying to figure out what this
regulatory regime looks like, and what data--what we are trying
to protect.
Mr. Feith. And if I could just note, in addition to the
ICTS process, which is an administrative instrument that is out
there and that has an important mandate to go implement, I
would note--Senator Wyden was here and has left, I see, but he
introduced a bill that has several Republican cosponsors--and I
think also Senator Whitehouse might be on the bill as well--
back in June to create a new export control category for bulk
American data. And so this would essentially take the export
control system that we have long had at the Commerce
Department, led by its Bureau of Industry and Security, and
create a new element of it to focus on the bulk transfer of
American personal data, in principle, to try to combat all of
these sorts of risks.
There are enormous complications for how exactly this would
be done. I would just observe that it is notable--and I think
unfortunate--that that bill pointing at a really important
national security China-related concern that we have, is not
the subject of more debate and consideration, including, for
example, in the major legislative process that you all
completed this summer with the CHIPS Act. And so it would seem
another opportunity in the new Congress, presumably, to look at
that effort and other ways of getting at that same very
important problem.
Senator Cortez Masto. I agree. Thank you. And so, what I am
hearing from you today is, the ICTS committee concept on the
white paper is a good start, it is where we should be starting
here?
Mr. Feith. Yes, ma'am.
Senator Cortez Masto. Is there any state--I am curious--is
there any state that you guys are aware of that has put in
protections that we should be looking at, that is a good model?
Mr. Feith. I will happily defer to colleagues as well. I
would just note that the short answer would appear to be
``no.'' The Europeans, through their GDPR, have a much more
aggressive and mature and advanced data privacy framework. But
they have been mostly directing it against the United States
and our big tech players and questions about the Privacy
Shield, and what the U.S. Government might do with European
personal data that gets sent across the Atlantic.
The European approach to data, for all of its vigor, has
been rather uninterested in the fact that the data protections
for Europeans in China are nil. And the Chinese platforms, of
course, operate in Europe as well.
Senator Cortez Masto. Thank you.
Thank you, Mr. Chairman.
Senator Carper. Senator Cortez Masto, I thank you.
Senator Casey was here, and he had to leave. He may be
back, and when he comes back, I will recognize him. Senator
Wyden was here and had to leave for a while. I think he will be
back, and I will recognize him.
But meanwhile, live and in person, Senator Young. Welcome.
He is somebody who shares my passion for these issues, and we
appreciate very much his leadership and allowing me to be his
wing man on some of them. Thank you.
Senator Young. Thank you, Mr. Chairman.
I want to thank our panelists for speaking to this
important issue of digital trade. I see incredible
opportunities and some risk as we try and plot our way forward.
The risk, I think, emerges because there is a sense of
urgency--at least I feel it--for the United States to work with
partners and allies to kind of further refine our rules in this
area. And as it relates to this area, as with so many other
international policies, we need to come up with rules that are
somewhat flexible, that are consistent across international
boundaries.
So there are a lot of commonalities between the work that I
think is going to be required here and what we do in other
areas. We also need to make sure that we are effective. We have
to make sure our digital trade rules can prevent the bad actors
from purloining our data and preventing us from growing to the
extent we otherwise would, and landing market shares, since the
United States leads in some of these areas, from digital
platform to digital services, and so forth.
And I think we can do a real service to many of our allied
countries across the Indo-Pacific in particular, and others.
There has been much conversation about that here today.
The administration, I think appropriately, has recognized
the importance of the Indo-Pacific. The digital trade pillar
within IPEF recognized the importance of this issue. But I feel
like a more targeted approach is necessary. And I know
colleagues on both sides of the aisle agree with me with
respect to that. The chairman and I have just introduced a
resolution, in fact, indicating our belief in the importance of
this area, and we hope that continues to gain more support.
My first question would be of Ms. Bliss. We have some
recent experience in this area of digital trade rulemaking with
USMCA. I am just looking at a punch list of things that are
included there. USMCA prohibits Custom duties on digital
products. There is a commitment to nondiscrimination,
localization requirements, no forced disclosure of source codes
and algorithms. It requires parties to establish civil and
criminal procedures and penalties for trade secret theft. And
it recognizes risk-based approaches and the need for strength
and cooperation between governments on cybersecurity. Those are
among the things that are called for in the USMCA.
How is this different, as we look at the Indo-Pacific
context? Just very briefly, what differences will be required
to cater to the Indo-Pacific countries?
Ms. Bliss. Well, first of all, I want to commend you, as I
did Senator Carper, for your leadership in introducing your
resolution on digital trade, and working with allies, and
listing barriers. That has been very effective and important.
But to your point, I think that because we are not in an
FTA negotiation, and we are looking at a different kind of
initiative that does not directly offer market access, one of
the challenges is going to be how we convince some of our
countries that may not be like-minded but that are
participating in the trade pillar on the digital piece to come
on board in the high-level standards.
So one of the differences I would point to is, I think it
is going to be very important that we do build in incentives
like capacity building, hopefully encouraging countries like
Indonesia, Thailand, Vietnam, Malaysia, to create environments
that will attract foreign investment, which we know they
desperately want.
The other thing I would point out is that I think another
difference is that we think it is really important to include
some new provisions that go beyond what was done in USMCA and
U.S.-Japan. And I have outlined that to the committee
previously, but just, for example, I think we absolutely need
to include principles on AI. I think that is very important.
I think we also need to include something on digital worker
upscaling. I think that is important for U.S. workers as well,
as it is for IPEF countries.
I think we need to include something on SME digital tools,
and something on greater inclusivity, just to name a few. And I
also want to highlight for the discussion, particularly some of
the remarks that Mr. Feith had made, that cybersecurity, I
think, is a very important area that we need to build on as
well.
Senator Young. Thank you for that. There is just so much
here. It is a very broad topic, and good subcommittee hearings
typically are based on broad topics that give us an opportunity
to move into a number of areas.
So one of the areas that I know my constituents are
interested in is the national security implications of digital
trade, and maybe not getting the rules right as we try and
address certain challenges.
So I would like to ask Mr. Feith some questions in this
area. Mr. Feith, specifically I am interested in the challenges
some of my colleagues have brought up with China. China is one
of the most digitally restrictive economies in the world, but
it is also one of the largest consumer markets in the world.
And in your testimony, you covered many examples to show
how the Chinese Communist Party is accumulating and exploiting
data, and pushing policies that allow them to selfishly advance
their own authoritarian interests.
So, Mr. Feith, I will just ask you an open-ended question
here. What is at stake if we sit back and we let China dictate
standards in digital trade? What is at stake if the United
States fails to boldly solidify some international standards,
especially as we look at the Asia-Pacific area?
Mr. Feith. Well, thanks, Senator. As with many things
China, taking seriously the words of the Chinese Communist
Party leadership and of Xi Jinping can be instructive on this
issue.
What he has said is at stake in the contest over data, and
over which countries and political systems are best able to
recognize the significance of data and exploit data--he has
said it is the matter of the upper hand in future world power.
He has been saying this actually for quite a while. It was
10 years ago that he compared data in our century to oil in the
last century as the most important component of economic and
therefore national power.
Senator Young. And do you agree with his assessment?
Mr. Feith. Yes. Not because it is his, but because there is
an insight there.
Senator Young. In fact, I think each of us would be wise
not to dismiss his assessment because it happens to come from a
Chinese Communist leader, right?
Mr. Feith. Yes, sir.
Senator Young. Thank you, Mr. Feith.
Mr. Chairman, I yield back.
Senator Carper. There was a great song I heard the other
day, ``You've Gotta Have Faith.'' There is no song that has
ever said you've got to have Feith. Has anybody ever
mispronounced your name, Mr. Feith?
Mr. Feith. It has been done.
Senator Carper. Even today. I like to say ``Feith'' as in
``wife.''
Senator Young. It is an excellent mnemonic device.
Senator Carper. We are rejoined by our committee chairman,
Senator Wyden. Thank you so much for being here.
Senator Wyden. Thank you, Senator Carper. The election is
supposed to be over, but things are just as hectic as before.
I am going to ask you a question, if I might, Dr. Meltzer.
Obviously businesses and workers and consumers understand that
in our country, the Internet is free and open. And having come
to the United States Senate when virtually nobody knew how to
use a computer, that was something that I have been dedicated
to, that proposition, ever since I had the honor of coming
here.
So our Internet is free and open. Communist China builds
its Great Firewall higher and higher year after year, shutting
out our businesses and crushing dissent. We are obviously
watching on our TV screens today the way the regime censors
protests, pushes back against the COVID lockdown, and brutally
cracks down on dissent.
My view is that we are watching, every night, a human
rights disaster unfold, and it is spreading like wildfire with
our trading partners in India, Vietnam, and Indonesia. All
across the world, for example, surveillance is becoming the new
normal, and technology is used to monitor worker communications
and stamp out dissent and organizing.
So I thought, because of your expertise, Dr. Meltzer, it
would be helpful to have you briefly outline several of the
smartest reforms that could be made to our trade policy to put
the United States in a position to push back as effectively as
possible against the human rights crackdowns.
Dr. Meltzer. Thank you, Senator, for the question. And I
certainly agree with your observation in terms of what is
unfolding at the moment. It is a dynamic space. And there is
clearly an important role, I think, for U.S. leadership on
digital trade policy issues as a key component of building an
ecosystem--I think particularly in the Asia-Pacific region--
which reaffirms the norm of an open and free Internet.
In many respects, this is sort of the center of where this
broad or strategic conflict, I think between the U.S.--and I
should say the West, really--and China is going to play out on
the ground. And we see this happening in versions of trade
policy which China is advocating, compared to what would be a
preferred, I think, U.S. approach.
And one need only look at, for instance, the RCEP, the
Regional Comprehensive Economic Partnership, which on one level
is not a bad agreement, but includes a lot of loopholes and
exceptions for China's approach to the Internet and
restrictions on data flows, and so forth. And we have a lot of
important countries in the region that are now party to that
agreement, which has become a baseline for them. And you know,
it refers specifically to the ASEAN countries, which are
obviously part of the RCEP agreement. They are negotiating a
digital economy framework agreement, probably starting next
year, and that will be their starting point. And moving them
towards a view of digital trade which is more consistent with
the view that the United States has of what would be an
appropriate way forward, in terms of data regulation and free
flow of data, I think is an important objective here.
And part of achieving that is going to be U.S.
reengagement, I think, on digital trade policy in the region.
Senator Wyden. My time is going to run out shortly.
You are a member of this committee in a hypothetical
question. What kinds of changes to our trade policy would you
advocate, to our digital trade policies, in order to allow our
country to push back as effectively as possible on these human
rights violations?
Dr. Meltzer. Well, I think that it would require starting
with what we have got and then using the full weight of access
to the U.S. market to incentivize the region to adopt an
approach to data flows and data regulation----
Senator Wyden. What would be an example of such an
incentive?
Dr. Meltzer. Well, I honestly think, Senator, that the IPEF
may get us part of the way there, but I think it would take a
comprehensive sort of trade agreement that built in a set of
digital trade rules that build on USMCA. But I think we need a
lot more. We have heard a lot on this panel about what that
might comprise, so I will not repeat that, but I think that the
rules which are combined with enforcement, plus the incentive
of access to the U.S. market as kind of the key piece, that
kind of incentivizes compliance with the rules that are kind of
the comprehensive----
Senator Wyden. We are very much interested in incentives
here in the Senate Finance Committee. The reason we got a
breakthrough with respect to clean energy policy is, we wrote a
piece of legislation that said the more you reduce carbon
emissions, the bigger your tax savings.
So, you had us at ``hello'' on the proposition that
incentives are a good thing. So we will hold the record open,
with Chair Carper's permission, and I would be very interested
in a couple of examples of your ways to tie these incentives.
And open markets are certainly one possibility. But if we are
going to actually put them down in the policy, we are going to
need to be able to lay this out in a straightforward way.
That is what we did with respect to clean energy. After 20
years of gridlock, we said, ``Hey, we are going to make this
pretty simple. It is going to be technology-neutral. It is
going to be market-
oriented. Everybody is going to have a chance to be part of a
new system. But the incentive is, you get the tax savings if
you do what the public needs so desperately, which is to reduce
carbon emissions.''
So, if you can give us something that resembles that as it
relates to digital trade markets, we will give you a parade and
a hot fudge sundae. Okay?
Dr. Meltzer. Well, that is a great incentive for me,
Senator. And I will add, on the incentive front, that there is
an infrastructure component here, which is really a development
issue in a lot of the world. When we talk about digital trade
issues for a lot of the world, getting access to the Internet,
sufficient broadband, is very crucial. And I think there is a
role here for the U.S. to take a more significant place in
supporting the infrastructure build and the investment that is
needed in the digital space as well, which would then support
the apps and the content services after that.
Senator Wyden. Well, thank you.
Senator Carper. Mr. Chairman, thank you so much for coming
back and not being here just once but twice. We very much
appreciate that and the help of your staff in putting this
hearing together.
We have been joined by Senator Warren. It is great to see
you. Thank you for joining us.
Senator Warren. Well, thank you very much.
Senator Carper. Please proceed. You are recognized for 2
hours. [Laughter.]
Senator Warren. Thank you, Chairman Carper. And thank you
very much for holding this hearing.
So, giant corporations use bad trade deals to pad their
profits and to chip away at protections for workers and for
consumers. And now that the U.S. and other governments are
trying to rein in big tech, their lobbyists and lawyers are
trying to rig digital trade rules to undermine those new
regulatory laws.
They wrote some of the digital rules in the new NAFTA
agreement, and now they are trying to rig the Indo-Pacific
Economic Framework negotiations as well.
So, take artificial intelligence, or AI. Companies
increasingly rely on AI, even though AI, for example, can
discriminate systematically, rejecting a job or loan for an
applicant for having a Black-sounding name, or penalizing a
worker for a disability, or misidentifying women of color in
police footage.
This raises big concerns. And Congress and regulators are
now taking a very close look at what is going on. But big tech
wants to keep its code in a black box where nobody gets to look
at it.
Mr. Woodall, you are the policy director at the AFL-CIO
Technology Institute. You are an expert on digital trade. Under
the source code secrecy rules that big tech is now pushing as
part of its digital trade agenda, could Congress pass pending
legislation requiring that companies submit their AI code to
the government, or to third parties say, to assess it for
potential bias?
Mr. Woodall. Senator, obviously Congress could pass those
laws to address the discriminatory impacts of AI in the
workplace, but they could run afoul of the digital trade rules
and be vulnerable to a challenge or a trade dispute. Obviously,
the sort of reliance on this ``necessary and legitimate''
clause, as a justification would be, I think, a little thin
reed to hide behind. The question is, legitimate to whom?
Necessary to whom? And recognizing that, in the digital and
technology world, our sort of regulatory landscape is very,
very thin.
Most of the other trade areas that have been built were--
really, the WTO went into effect decades after we had
environmental protections and workplace safety rules. So this
is a very different sort of environment, where the digital
trade has a different impact on the ability to address the
known downsides of technology on workers and people.
Senator Warren. Okay, so that is a really powerful point.
Now, you know, tech lobbyists like to say that source code
secrecy is about protecting trade secrets from China. But they
have written the trade rules to apply to everyone, including
U.S. regulators. Now the tech lobbyists will say the language
includes exceptions that ensure that regulators can still get
access.
So what I want to do is just take another, closer look at
the fine print on this. Regulators can look at source code or
algorithms for, quote, ``a specific investigation, inspection,
examination, enforcement, action, or judicial proceeding.''
Mr. Woodall, could regulators really use this exception? Is
this going to solve the problem?
Mr. Woodall. I think it is a real concern, Senator. And the
reason--there are a couple of reasons.
One is that this sort of flags the VW problem, right, where
EPA got a whistleblower to send the source codes to EPA that
flagged that there was a problem with VW spoofing emissions
tests. Now the question is whether there would be an ability to
know to pursue these kinds of investigations. It is really a
``chicken and egg'' problem, right? You have to know enough to
be able to pursue the investigation. And so this specificity
language could make it hard to really know whether to launch an
investigation without being able to see under the hood.
And then the second sort of problem with respect to
specificity language is, it pretty much precludes sector-wide,
or practice-wide investigations that regulators frequently
pursue to see how consumers are protected, or what is going on
in the workplace. So I think the recognition that there is a
legitimate role for government is good, but narrowing it into a
specific case really is a concern for us.
Senator Warren. Okay. So I get your point. So big tech
wants to protect whatever is in the black box from AI, and they
not only want it protected from China, they want to protect it
from U.S. regulators.
But of course big tech companies only care about secrecy
when it is their secrets that they want to protect. Meanwhile,
they are fighting to protect their ability to collect, to
store, and to sell your data anywhere else that they want in
the world. And that is why the tech lobbyists behind the trade
rules prohibit any limits on the international transfer of
data.
So what if we wanted, here in the United States, to put
limits on the transfer of sensitive data, say period tracking
data, or location data for people who visited abortion clinics?
Especially we want to put limits to countries with poor data
protections.
Mr. Woodall, big tech says we should not worry, because
countries can still pass laws to protect data, so long as they
fit under standard trade agreement language called the
``legitimate public policy exception.'' But how often have
countries actually succeeded in using this language to defend
their laws protecting consumers or workers or the environment?
Mr. Woodall. It is quite infrequent. Less than 5 percent of
the cases at the WTO where regulations were challenged as
illegal trade barriers were upheld under the necessary and
legitimate type tests. So it is very difficult to survive under
these particular policy caveats. But as I said, I think it is
going to be harder with digital because we have so little
regulatory infrastructure and foundation upon which to defend
the legitimacy and necessity of the regulations.
So as we are sort of--look, this is a world where we are
just beginning to confront the concerns with this. And there
are a bunch of laws that are being considered in Congress that
would affect the digital privacy and monopolistic platform
practices that could run afoul of these digital trade rules.
I would add, on the privacy issue, that language in the
USMCA specifically says it must be necessary and proportionate
to the risk, which is sort of an even higher threshold to
defend future privacy rules.
So, all of this--look, there is a good reason to consider
protecting privacy and protecting the data that is behind
privacy for things that have been said on this panel already,
on things like biometrics, on health data, on financial data.
There are good reasons to exclude those kinds of personal data
from the free flow of data and data localization, and there are
good reasons to exclude things like critical infrastructure, as
has also been said today.
So I think, thinking about exceptions to these data
provisions is essential going forward.
Senator Warren. Okay. So, thank you. It is a very powerful
point you make. We are barely at a 5-percent success rate on
trying to enforce the exception, so you are saying it could be
even worse under the conditions if we go forward in the digital
area here.
You know, it is not a surprise that big tech is trying to
weaponize digital trade rules. They know that the U.S. Congress
is now considering bipartisan legislation to try to rein in big
tech. So this is a move to fight back.
And let's be blunt. Big tech has a lot of friends. I have
raised concerns about the revolving door between big tech and
the agencies like the Commerce Department that are leading our
digital trade negotiations.
We cannot let big tech hijack current trade negotiations
like the Indo-Pacific Economic Framework. Voters want Congress
to strengthen their digital rights, and our trade agenda must
reflect that approach.
Thank you very much, Mr. Chairman, and I appreciate your
indulgence for the long questions and answers.
Senator Carper. I know we were happy to welcome you and
indulge you as much as you needed. That was great. Thanks for
that exchange. Thank you for the enthusiasm you bring to these
subjects too.
The Small Business Administration does a lot to promote the
establishment of small businesses--to grow them--and they push
something, I think it rolls around every Saturday, maybe right
after Thanksgiving, and they call it ``Small Business
Saturday.'' And the idea is to try to encourage people across
the country to patronize our small businesses. I think it is a
good thing. I enjoy doing that. We try to help to nurture all
those small businesses, and a lot of times they grow up to be
really big businesses.
I have a question that relates to small businesses, and
some small businesses understand every word you are saying;
others do not. And just keep that in mind as you respond to
this question.
But I think, Ms. Bliss, I am going to ask you; Dr. Meltzer,
you can join us as well. But the same question, and maybe, Ms.
Bliss, you could go first. The question is, digital
connectivity has the power to unlock tremendous opportunities,
not just for big businesses or middle-sized businesses, but for
small businesses too, by connecting them with consumers across
the globe.
Some of the small businesses I visited with my staff just
in the last couple of weeks--we have actually seen that with
our own eyes and heard it with our own ears. However, small
businesses often need additional support in order to access
foreign markets and to reap the benefits of our digital
economy.
The question: what resources can help small businesses
participate in the digital economy? And how can digital trade
rules facilitate new export opportunities for small and middle-
sized entrepreneurs?
Ms. Bliss, would you go first?
Ms. Bliss. Thank you, Mr. Chairman. And you will forgive
me, but I----
Senator Carper. I forgive you. You do not have to ask me to
forgive you. [Laughter.]
Ms. Bliss. I will just divert for one moment, and then I
will answer your question. And that is, that I think it is
unfortunate that there is an enduring perception among some
that the digital agenda is about big tech and driven by big
tech. And I think my organization is an example of that.
Yes, we do have several large tech companies, but they are
only about 10 percent of my membership. And we have large and
small businesses represented, and manufacturers. And as I said
in my testimony, I think you certainly understand, and others
do as well, that building strong digital rules is really across
the board, not just about big tech. It is across sectors,
across industries, and so that is what I was going to ask your
forgiveness for, if I could divert to that for a moment.
But back to small business. I think that it is very clear
that I know that the Commerce Department does a good job of
providing information to small businesses to help them export.
I think there needs to be a lot more of that. I think small
business needs to be provided with digital tools. I know
certainly, among my members, there is a lot of that going on,
where they have facilitator labs for start-ups and small
businesses where they give them digital tools, whether it is
AI, use of platforms, other digital technologies, cloud
technologies. But I think there needs to be more of that from
the government, as well as the private sector, maybe in public-
private partnerships.
To answer your question about what specifically should be
included in IPEF, for example, we think that it is very
important that there be a provision where countries commit to
the importance of providing those tools, digital tools, to
small business, and capacity building in particular. Certainly
the United States is very important, but also in IPEF
countries.
And so, I think that that alone would be maybe the most
helpful thing that could be done for small business in terms of
specific provisions that could be added in IPEF, and also just
general capacity building that I know CSI member companies are
already doing in the U.S., but also in IPEF countries.
Senator Carper. All right. Thank you.
The same question for Dr. Meltzer. What resources can
better help small businesses to participate in the digital
economy? And how can digital trade rules facilitate new export
opportunities for both small and medium-sized enterprises?
Dr. Meltzer. Senator, thank you for the question.
Let me just go directly to the question of the digital
trade rules. I think it is really worth noting that, in many
respects, these rules are perhaps most important to small
businesses, because the reality is that, at the end of the day,
a lot of large businesses can manage the frictions and the
costs, and they can locate facilities in countries where they
may need to, but it is just not an option for small businesses.
And so a lot of the ways that the digital trade rules
minimize transaction costs and make e-commerce particularly
seamless are really the key benefit for them. I think about
these in three buckets. I mean, one I would think about is
those that facilitate e-
commerce. And there are some that have been around for a while
but are really quite essential, like recognizing e-signatures.
You cannot do a contract if that is not recognized in both
countries. Issues around digital authentication and digital ID
are new developments that also allow one to basically have a
more seamless kind of person-to-person interaction online.
The de minimis outcome in USMCA which raised that in Canada
and Mexico to facilitate e-commerce exports to these
countries--there is a whole range of de minimis levels globally
that we could look at trying to kind of find some agreement on,
and just the nuts and bolts of the way Customs procedures work,
and so forth, which is sort of the old work of trade policy,
which is actually still relevant for e-commerce, because we are
doing a lot of digital services online. We are also doing a lot
of goods purchases online that still have to go through the
typical trade channels. But making sure they fit for these kind
of small business transactions is important.
Another one I would mention is around interoperability. The
U.S.-EU Privacy Shield 2.0 is one that has gotten a lot of
attention because of its impacts on Facebook, but it would have
had enormous impacts on a whole range of small businesses if
small businesses that were selling in to Europe were unable to
collect personal data once they made their transaction.
So ensuring that, despite differences in regulations, data
can flow freely, personal data can flow freely but remain
protected, I think is a key thing that digital trade rules can
continue to address, and that will have a big impact on small
businesses.
And finally, we have all talked about data flows, but I
mentioned in my written testimony and my oral testimony the
importance of sort of platform-solving for the barriers that
allow small businesses to become exporters. The data flow piece
is actually the key there as well.
Senator Carper. Thanks for those responses.
Ms. Bliss, at one point in time when he was responding, I
was watching you, and you were vigorously nodding your head,
and I thought, ``Maybe I should call on her again.'' So, do you
want to jump in and add something?
Ms. Bliss. Yes. I totally agree with what Dr. Meltzer
described, and I am so glad that he mentioned trade
facilitation, because that is another really important piece.
But I also want to mention that I think a permanent moratorium
on e-commerce duties is also critical, especially to small
business, because that is something that can definitely hurt,
particularly if there was retaliation, if it were to lapse and
not exist with respect to small business, both exporting and
importing.
So I just wanted to add that one as well.
Senator Carper. Good. I am glad you did.
Mr. Feith, do you want to opine on this one?
Mr. Feith. No, sir.
Senator Carper. All right. Maybe I will give you another
shot at a different question. This one deals with bolstering
our cybersecurity and our digital infrastructure.
Digital infrastructure, including things like broadband,
like data centers, like physical input, like semiconductors,
have become critical to global trade, and have been for some
time.
What vulnerabilities currently exist related to digital
infrastructure? Talk about some of those, and how can we
safeguard these resources--or maybe better safeguard these
resources in order to protect the cybersecurity of American
workers and our businesses?
Mr. Feith. Well, thanks, Senator. It is a huge subject, and
I will try to give you a limited answer. I think that we have
seen a lot of really important action on recognizing the China-
related threat in cyber-space generally, around things like the
theft of intellectual property, say over the last decade, the
threat that relates to telecommunications infrastructure in the
U.S. and around the world, especially over the last 5 years or
so. The understanding of what Huawei and ZTE and others mean--
we have seen steady action from parts of our government that
are responsible for those areas. We still need more of it, but
we have seen at places like the FCC, the Federal Communications
Commission, over the years, including just last week, a lot of
effort to sort of gradually and increasingly restrict the
ability of Chinese companies, subject to Chinese Communist
Party influence and control, to be present in the hardware and
software of the U.S. telecommunications infrastructure.
One thing that I would note, though, that is really
interesting and kind of emergent about what this means in our
consumer economy--but also in our national critical
infrastructure--is things like drones and surveillance systems
and cameras.
Some of these areas are, in a sense, uncovered by our
traditional regulatory approaches. And so on drones, you have
had this interesting and rather frustrating scene over the last
several years where various parts of the U.S. Government--DHS,
the Pentagon, and others--have put out statements that relate
to the fact that these Chinese drones pose these major data-
integrity concerns because of the complete ability of the data
to be subverted by Beijing and used for hostile purposes.
But the statements from DHS, for example, are just
advisory; useful and educational, but not really restrictive
when it comes to what State governments or local law
enforcement or power grid operators do when it comes to
procuring drones.
Some of those DHS advisories succeeded in getting operators
of power grid infrastructure, for example, to get rid of their
Chinese-procured drones. But others did not get the message,
and the message was just advisory. It was not mandatory. That
sort of thing is present broadly throughout. And there are
parts of the picture, such as the autonomous transport piece
and the digital mapping piece, that appear to have gone
basically entirely unremarked on, even by advisory statements
from the U.S. Government, because we are still catching up with
this issue.
So we have an issue where the leading autonomous transport
companies in the country, doing really advanced things in
California and Arizona and elsewhere, are in many cases deeply
tied to financing and engineering and other connections to
China--to the Chinese state, to the Chinese military--and yet
they operate freely here. They operate without restriction when
it comes to the sharing of U.S. road and port and other
critical infrastructure digital mapping data, internationally
back to engineering fleets in China. And all of that would seem
to pose really very significant risks in the sort of
cybersecurity and critical infrastructure areas that you have
asked about.
Senator Carper. Good. Thank you. One last question.
My last question, and I will just telegraph this, but I am
going to ask you a number of things. A number of times I will
ask witnesses what should we do on this issue or that issue? I
am going to ask you to give us one example of something we
should not do as we go forward. Is there something we should
not do? Okay, so just be thinking about that.
Okay, my question, my next question is of Mr. Woodall. Mr.
Woodall, where are you coming to us from today?
Mr. Woodall. In Washington.
Senator Carper. Oh, good. You seem close; I can feel that.
But anyway, whether you are in Washington, DC or Washington
State, we are delighted to have you join us. How long have you
been involved with the AFL-CIO Technology Institute?
Mr. Woodall. For about a year.
Senator Carper. Okay. Did you start right out of school?
[Laughter.]
Mr. Woodall. Yes, but not here. I have been working on
public trade policy for decades.
Senator Carper. Really? Okay, well good.
My question, serious question, is, as the use of digital
technology grows, and as it evolves, it is critical that
American workers feel the benefits of these innovations in a
couple of ways. One would be through better jobs, and the other
would be better wages, higher wages.
My question would be, how can digital trade cooperation in
investments and in our workforce help ensure that American
workers develop the kinds of skills that are needed for success
in the digital economy? I visited businesses large and small a
lot when we were on recess for several weeks earlier this
month, and almost every day when I visited businesses large and
small, I would ask them, how are we doing? How are we doing, we
in Congress, in the State of Delaware, and what can we do to
help? Actually what I heard more than anything else was, we
just need people to come to work, people who are trainable,
with the requisite skills, who are trainable for additional
skills, added additional skills. That is what they said that
they were looking for and needed. So I am focusing right now on
that.
But my question, how can digital trade cooperation and
investments help ensure that American workers develop the
skills needed for success in the digital economy?
Mr. Woodall. I think obviously, investment in workforce is
critical for the next generation of technologies. This is the
sort of discussion that is going on around the CHIPS and
Science Act, and in other parts of the administration's agenda.
We have been very involved to make sure that the jobs that
are created are good union jobs with good pay, and provide
opportunities for advancement. We are very supportive of that.
I think what we are concerned about in the digital trade
arena is the extent to which some of these technologies are
really corrosive on workplace conditions and workplace fairness
and erode workers' income. And so we have seen this with a lot
of the algorithmic management issues, and we are very concerned
that it will be difficult to address things like workplace
surveillance, the unfairness behind algorithmic management that
workers face every day in the workplace. And frankly, much of
this surveillance is off the job as well.
So it needs to be a situation where there is enough
domestic governance space to protect workers from the downsides
of the digitization, as well as provide opportunities for
workers going forward in real workforce development that
centers workers in that process.
Senator Carper. All right; thanks. Do any other witnesses
want to comment on that? Ms. Bliss?
Ms. Bliss. Mr. Chairman, I would just add that I think that
one of the things that we have certainly endorsed and think is
important is that there be a provision included in the new
digital piece of IPEF--and in other U.S. initiatives--that
addresses AI principles, including respect for human-centered
values, which is certainly one of the OECD AI principles that
we think is very important and could be helpful in addressing
concerns about things like abuse of AI.
Senator Carper. Thanks.
Mr. Feith, anything else you would like to add?
Mr. Feith. No, sir.
Senator Carper. Dr. Meltzer?
Dr. Meltzer. Just building on Christine Bliss's point, the
White House released a blueprint for AI--human rights and AI--
and I think this would be an excellent starting point to think
about including in the digital trade agreement, because it
would certainly reflect U.S. values, and I think it would get
at a lot of the concerns that have been expressed today about
ensuring that AI is used consistent with human rights as well
as labor standards.
Senator Carper. Mr. Feith, do you agree with that?
Mr. Feith. Yes, Senator.
Senator Carper. How about Ms. Bliss? Do you agree with
that?
Ms. Bliss. Yes.
Senator Carper. All right.
I told you I was going to ask you about any advice of what
not to do on this front, and we would welcome that.
Mr. Woodall, if you do not mind, I am going to ask you to
respond to that question first. I am not asking you to advise
us in Congress what we ought to do, but what are we not to do,
to be careful to avoid? Please, Mr. Woodall?
Mr. Woodall. Certainly, I think there are a lot of things
to be careful to avoid; I have talked about some. I think one
area to consider avoiding is sort of blanket exclusions. And I
would recommend something that would exclude personal
vulnerable data and critical infrastructure from the data flow
and data localization commitments that we have seen in other
digital areas.
I think these are areas where there is broad consensus that
there needs to be more protection, and so we should sort of not
include that.
Senator Carper. Dr. Meltzer, what should we avoid doing?
Dr. Meltzer. One comment about maybe the politics, which is
not for me to manage, but avoid this becoming a partisan issue.
I think it has a huge economic value across the U.S., and we
should be able to get behind this. But I think specifically, we
should avoid walking away from anything that would dilute the
commitment to data flows. I think the thoughts on the
exceptions are really crucial here. It is really where the
battles are being waged between maximizing the economic
opportunities and providing the regulatory space for
governments to keep doing what they need to be doing. And I
think it is really important that we get that bit right.
Senator Carper. Senator Cornyn, who is the ranking member
on this subcommittee and was the chairman--we are glad to work
across the aisle. And we do not see these as partisan issues.
And Todd Young, Senator Young, who was here, feels very much
the same way, and that is the way I like to operate.
And I get to chair the Committee on Environment and Public
Works, and a lot of the big pieces of the bipartisan
infrastructure bill came through our committee, which was
adopted unanimously in our committee, and later by overwhelming
margins in the Senate.
We have reported out big pieces of the Inflation Reduction
Act, big pieces including methane reduction programs,
unanimously, and later reported out unanimously the Water
Resource Development Act, which will be before the Senate
probably later next month.
A lot of folks across the country have worked together, and
I am just here to tell you that a lot of times we do not get on
television much when working together, but it is the glue that
holds our country together, I think.
With that, my last question: is there a question that you
maybe thought you would be asked, that should have been asked,
that was not asked?
Dr. Meltzer, is there a question maybe you hoped would be
asked that was not asked?
Dr. Meltzer. I think part of the piece here is the way the
rest of the world is looking at what the U.S. is going to do in
this space, and the perspective that the rest of the world has
on the decisions that the U.S. makes. It is understandably a
very domestically focused set of considerations at the moment,
but the desire for, I think, U.S. reengagement on the digital
trade piece in a lot of the Asia-Pacific could not be
overstated.
They are dealing with the challenges from China in a
geographically proximate way on digital regulation broadly,
including across a whole set of issues. And I think this is one
piece of what is really being asked for in terms of U.S.
leadership that would be absolutely well received and welcomed
in that part of the world.
Senator Carper. Thank you.
Same question, Mr. Feith.
Mr. Feith. Well, Mr. Chairman, I will go back to your
previous question about what not to do, and I would offer a
suggestion not to let these China data problems get so big they
seem unfixable. TikTok was a lot smaller in its share of the
U.S. social media market and in its cultural presence 2 years
ago when the last administration attempted a ban. These things
have grown bigger and more problematic very quickly.
We had an interesting discussion about the biodata question
and whether too much has been transferred already, and whether
it is too late. It would seem that it is not too late. But it
can become so over time, the more that these sorts of
problematic data relationships with China give Beijing leverage
over us and box us in and limit our decision-making--and
ultimately limit our sovereign ability to protect ourselves in
this space.
Senator Carper. Thanks for responding to that question as
well.
Ms. Bliss and then Mr. Woodall, the same question of what
you would like to have been asked but were not asked. Go ahead.
Ms. Bliss. Well, I think it was asked in some respects, but
I think more about the importance of--and it is a corollary to
what Dr. Meltzer raised about U.S. leadership, but at the same
time what are the challenges that we face, particularly in
IPEF, in getting not only our like-minded countries, but other
countries that are now agreeing to participate in the trade
bucket to get onboard with a high set of digital principles.
And I do think we face some real challenges there,
particularly from countries like Indonesia and Vietnam. So that
would be one question.
And the second thing I will answer to your previous
question about what not to do is, I think it is absolutely
critical that in IPEF--or any of our other initiatives with
respect to digital--that we not go backwards, and that we build
on what we have done. It can be improved. It should be added
to, but we should not go backwards.
Senator Carper. All right; that is good advice.
Okay, does anybody have a last thought? Mr. Woodall,
anything else you want to add or take away?
Mr. Woodall. No. I mean, I expected to sort of be asked
about the ephemera of digital affecting real workers' lives,
and I think there is a recognition that there are real
challenges workers face because of the digitization, and we
need to deal with that in more worker-centered digital trade
provisions going forward.
Senator Carper. Not everybody who answers the question
leads with the word ``ephemera,'' so thank you for that
addition.
I think that is pretty much it. I just want to close with
``thank you.'' I want to thank each of you for taking time to
join us in person, or virtually from not too far away here in
Washington. Thank you for what you do with your lives and for
what you do for our country, directly or indirectly.
I want to thank Senator Cornyn, with whom I'm proud to lead
this subcommittee. In fact, we have worked on a lot of issues,
including some of the issues when the gun safety legislation
was adopted several months ago. But we look for opportunities
to work together. I have great respect for him and his staff,
and I also appreciate very much the efforts of Senator Todd
Young and the opportunity to partner with him.
And I would say to my own staff and other members of the
staff, including the majority and minority staff of the full
committee, how much we appreciate their working with us as we
put together this hearing.
I have a script here that tells me--it gives me how many
days my colleagues have to submit their questions for the
record, and they do not have much time. For the Senators who
wish to submit questions for the record, those questions are
due 7 days from today. That is a pretty quick turnaround. Our
witnesses, however, will have 45 days to respond to any
questions for the record.
So that should put us through, I think through December,
through the holidays, and maybe into the beginning of the new
year. But if you receive those questions, just try to get them
back to us before too long.
And with that, I think this is a wrap. Thank you all. You
are dismissed. Thanks so much.
[Whereupon, at 5:05 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Christine Bliss, President,
Coalition of Services Industries (CSI)
Mr. Chairman, Ranking Member Cornyn, and members of the
subcommittee, I appreciate the opportunity to appear before you today
to discuss the benefits of digital services trade to businesses both
large and small as well as workers and consumers across the economy. My
name is Christine Bliss, and I am the president of the Coalition of
Services Industries, a nonprofit trade association that represents U.S.
services firms on services and digital trade issues. Our members
include companies that provide distribution, logistics, financial
services, professional services, and information and communication
technology services. CSI members also include manufacturers of consumer
technology, telecommunications equipment, and health and nutrition
products. Our members both deliver many aspects of their services
digitally as well as rely heavily on software and digital technologies
in their business operations. CSI member companies operate in all 50
States and over 200 countries and territories.
Too often the discussion of the digital economy is narrowly and
mistakenly viewed as an issue that only relates to and benefits large
firms in the information and communication technology sector. In fact,
it is essential to the health and future of companies both large and
small in sectors throughout the economy: manufacturing, agriculture,
health, education, environment, transportation and logistics,
communications, finance, distribution and media and entertainment, to
name just a few. It is a major source of existing and future U.S. jobs
and growth fueled by U.S. global competitiveness.
To ensure that our economic growth is robust and that its benefits
extend to all Americans, especially small firms, women- and minority-
owned businesses, and workers and their families, it is vital that the
U.S. not only ensure that its domestic infrastructure and industries
are strengthened through measures such as the CHIPS Act, it must also
address the threat to U.S. global competitiveness arising from growing
digital protectionism and fragmentation. That is why it is more
important than ever that the U.S. build strong binding, enforceable
digital disciplines, remove discriminatory digital trade barriers, and
promote greater inclusivity in the global digital economy by fully
engaging with trade partners in the Indo-Pacific, UK and Europe,
Taiwan, North America, Africa and Latin America, as well as the WTO and
forums such as APEC.
CSI believes that promoting strong digital disciplines and greater
inclusivity are complementary goals. Working together, Congress, the
administration, business, labor, environmental groups, and other
stakeholders in this new piece of the economy have a unique opportunity
to develop policies that will shape the direction and growth of digital
trade for years to come.
what is the digital economy?
At its core the digital economy is powered by its basic
communications network of fiber-optic cable, computer chips and other
technology, software and services that create the Internet, and its
ever-evolving platforms that enable data to carry information across
the Internet and be used in myriad products and services. We carry on
our lives via the digital economy from texting colleagues and friends
on our mobile phones, working or shopping online on our laptops, to the
factory floor from design, to construction and assembly of goods
including the sensors that expand the capabilities of those goods.
Autos, tractors, planes, and everyday consumer products are produced
using advanced manufacturing technologies that rely on data analytics,
artificial intelligence, and cloud services where data may be stored
and processed. Digital technology monitors the safety and operation of
the planes we fly and the cars we drive. Digitally enabled tractors
allow farmers to test soil quality or the cloud technology they use to
time when to plant crops, digital technology helps farmers take care of
their animals from herding, to reproduction, to detecting illness.
Cross-border exchange of research and design facilitates development of
computer chips and sharing of the latest medical research on critical
new vaccines--this is just a fraction of the digital economy.
The digital economy is also playing an important role in addressing
climate change through encouraging reduction of carbon emissions, and
facilitating response and relief in instances of natural disaster. And
along with greater efforts to expand broadband capacity, it is
extending the reach of services available to underserved communities,
particularly in areas such as health, education, financial services,
and job opportunities in those sectors. Just think of how this
committee was able to continue its work through the onset of the COVID-
19 pandemic by working remotely, as were businesses, and schools and
countless other examples.
As explained below, one of the greatest impacts of the digital
economy is in helping small businesses establish and extend their reach
into domestic and global markets.
economic impact of digital economy
It is important that Congress and the administration focus on the
impacts of the digital economy on American business and workers as it
is a burgeoning source of economic activity, growth and jobs. According
to the Commerce Department, in 2021, the digital economy generated $3.7
trillion in gross output, over 10 percent of total U.S. GDP.\1\ Digital
gross output increased by 9.8 percent in 2021, compared to 5.9 percent
for the economy overall. The digital economy is also an important
provider of jobs in the United States. In 2021, 8 million workers owed
their jobs to the digital economy. An increasing percentage of U.S.
jobs generally require digital skills. These skills are not needed just
for professional level jobs. High school educated individuals are able
to obtain certification that allows them to acquire needed skills in
areas such as IT network building.
---------------------------------------------------------------------------
\1\ This and subsequent data reporting the importance of the U.S.
digital economy are from the U.S. Department of Commerce, Bureau of
Economic Analysis, ``New and Revised Statistics of the U.S. Digital
Economy, 2005-2021,'' https://www.bea.gov/data/special-topics/digital-
economy.
---------------------------------------------------------------------------
benefits of digital economy
The digital economy has been a key source of resilience for the
United States throughout the pandemic, getting businesses--especially
small businesses--and households through a challenging period.
Facilitating Social and Economic Resilience During the Pandemic
Millions of workers had to figure out ways to work or go to
school from home, and the Internet and other digital services
made that possible.
Digital services enabled hundreds of thousands of small
businesses to become digital virtually overnight, sustaining
their businesses through the pandemic. One-third of small
businesses state that they would not have survived the pandemic
without access to digital tools.\2\ Just one example is Freaks
and Geeks LLC in Denton, TX, where Alex Featherstone reported,
``COVID forced us to shut down our physical store. Without any
foot traffic to our store, we were not making a profit large
enough to pay our store's rent and eventually we were forced to
sell. Facing the death of my business, I decided to give eBay a
try. eBay gave us a place to transfer all of our retail and
keep our business alive. Thanks to the growth we have
experienced on eBay, we will be able to buy another physical
location once the pandemic ends.''\3\
---------------------------------------------------------------------------
\2\ Connected Commerce Council, ``Digitally Empowered,'' https://
digitallyempowered.connected
council.org/.
\3\ eBay, ``United States Small Online Business Report,'' May 2021,
https://www.ebaymain
street.com/sites/default/files/policy-papers/
2021%20Small%20Online%20Business%20Report.
pdf.
---------------------------------------------------------------------------
Financial services firms made it possible for people to bank
from home at the same time banks developed new digital
technologies to assist the unbanked and facilitate government
subsidies and direct payments to the American people. They also
supported thousands of companies in getting PPP loans.
Digitally connected supply chains eventually enabled
manufacturers to restock their customers. Transportation and
warehouse workers kept supplies moving, particularly of PPE
goods needed to fight the pandemic.
Cloud services--like the open industrial IoT, advanced
analytics and AI provided by one U.S.-based cloud services
provider--were an important way in which many manufacturers
were able to address issues to their business end laid bare by
the pandemic. Currently, 96 percent of manufacturers use cloud
technology or plan use it in the near future.\4\ Additionally,
by the end of 2021, 90 percent of all manufacturing supply
chains will have invested in the technology and business
process necessary for true resiliency, resulting in
productivity improvements of 5 percent.\5\
---------------------------------------------------------------------------
\4\ ``Managing Application Development: The manufacturing
perspective,'' Economist Impact, April 16, 2019, https://
impact.economist.com/perspectives/technology-innovation/managing-
application-development-manufacturing-perspective.
\5\ IDC Futurescape: Worldwide Manufacturing 2023 Predictions,
https://www.market
research.com/IDC-v2477/IDC-FutureScape-Worldwide-Manufacturing-
Predictions-32554203/.
---------------------------------------------------------------------------
Cross-border sharing of research and data supported the
development of vaccines. The health-care industry pivoted to
telemedicine. For example, companies like Now Optics (https://
nowoptics.com/our-journey/) in Indiana, now provides virtual
eye exams to customers across the United States, with customers
more comfortable with telemedicine as a result of the
pandemic.\6\
---------------------------------------------------------------------------
\6\ Bill Briggs, ``Vision quest: How Now Optics is delivering
virtual eye care to millions of patients,'' April 14, 2021, https://
news.microsoft.com/transform/vision-quest-how-now-optics-is-delivering-
virtual-eye-care-to-millions-of-patients/.
---------------------------------------------------------------------------
Helping Small Business Start-Ups Succeed
Olaris, a women-owned life sciences lab in Boston, MA, with
the help of AI technology has developed a non-invasive kidney
transplant test. This small group of scientists was able to
build an Internet platform to study the role of metabolics in
the early detection of cancer.
Honest Jobs, a Denver, CO-based small business founded by a
former prison inmate, was able to create a platform using
assistance in coding and use of cloud technology providing an
employment network for ex-convicts trying to enter the
workforce.
Marketing for Greatness, a Cedar Park, TX-based marketing
consultancy, was founded by Jessica Santos, a then-new mother.
Transferring her legal and accounting skills to the digital
economy, Jessica launched her own digital marketing firm and
led the international expansion of a Fortune 500 company while
working from home and raising four children.
Fraud.net, a women-owned fraud prevention platform in New
York, offers an end-to-end fraud management and revenue
enhancement ecosystem specifically built for digital
enterprises and fintech globally.
In many cases, the introduction of new digital goods and services
into our daily work and home activities over the last 2 years has
permanently changed the way we work and play.
digital services trade
As members of the subcommittee know so well, the U.S. economy
depends on international markets. You know the statistic: more than 95
percent of the world's customers live outside the United States.
Reaching those customers by exporting American goods and services now
almost universally entails a cross-border digital services trade
component.
Manufacturers communicate with international customers via
email and track deliveries over the Internet. U.S.
manufacturers rely on services like finance, marketing,
payments, insurance, and logistics to ship their products to
international markets, all of which are digitally enabled in
important ways.
Small businesses use e-commerce to reach customers across
the globe. eBay reports that ``. . . eBay-enabled small
businesses in every State have been engaging in global trade at
a scale once reserved for the very largest corporations. The
numbers are striking: a massive 96 percent of eBay-enabled
small businesses in the United States export--a rate of
exporting that dwarfs that of traditional businesses. . . . The
ability of small, independent businesses to reach consumers
anywhere across the globe has helped foster enterprise growth
in rural and more diverse counties, places that too often
otherwise suffer from economic stagnation.''\7\
---------------------------------------------------------------------------
\7\ eBay, ``United States Small Online Business Report,'' May 2021,
https://www.ebaymain
street.com/sites/default/files/policy-papers/
2021%20Small%20Online%20Business%20Report.
pdf.
---------------------------------------------------------------------------
Engineers, architects, and accountants all benefit from
being able to provide services such as design or financial
consultations and send drawings internationally over the
Internet without having to establish a foreign presence.
Retailers process payments from customers both in the United
States and abroad using online payment transaction services
offered by American payment networks. Online access to this
financial service is particularly important for enabling small
retailers to service international customers.
Insurance, shipping and other firms are increasingly using
Blockchain ledger technology to keep real time track of
accounts and transactions, increasing reliability and security
of customer accounts for information.
Tourists and business travelers book transportation and
accommodation services over the Internet.
Transportation services providers track the arrival and
departure of ships or airplanes containing U.S. exports or
imports in real time using GPS and other transportation
management software.
Small computer application developers and content creators,
typically sole proprietors or small businesses themselves,
benefit by expanding the range their sales into foreign markets
via the Internet.
Selling goods and services to the world using digital trade
supports American manufacturing, farming, and services creation and the
millions of jobs associated with that trade activity. This is not just
about promoting the interests of high-wage workers at large U.S.
services and digital firms and other professional workers; it is also
about creating new opportunities for the 52 million U.S. workers in
services occupations earning middle-class wages.\8\
---------------------------------------------------------------------------
\8\ CSI, ``White Paper 1: Services and Digital Trade Are Critical
to U.S. Competitiveness and Middle-Class Job Creation,'' https://
uscsi.org/wp-content/uploads/2021/10/CSI-White-Paper-1-Services-Dig-
Trade-Comp.pdf.
---------------------------------------------------------------------------
importance of providing digital tools to small businesses
Digital tools--e.g., access to broadband, Internet platforms, and
the latest digital applications in the cloud--are also vital to micro,
small, and medium-sized businesses which increasingly depend on them to
expand their domestic and international customer base. A study that
surveyed U.S. small businesses found that 92 percent that export use
digital tools such as online payment processing tools, online
productivity tools, e-commerce websites, online marketing and other
tools.\9\ That same study found that exporting accounts for a growing
share of small business services firms' revenues, reaching 25 percent
in 2018, and nearly 6 million export-related jobs nationally.
Particularly during the pandemic, Internet platforms afforded small
businesses new opportunities to offer their goods and services
globally, and software and services enabled small businesses to operate
more competitively and efficiently.
---------------------------------------------------------------------------
\9\ United States Chamber of Commerce and Google, Growing Small
Business Exports: How Technology Strengthens American Trade, October
2019, https://www.uschamber.com/assets/archived/images/
ctec_googlereport_v7-digital-opt.pdf.
Just one example is Cloud to Street, a NYC-based small women-
founded and -owned business that uses digital tools to monitor, map and
analyze floods and flood risk in the most climate-vulnerable
communities around the world. Cloud to Street uses global satellites
and remote sensing AI to monitor risk and detect floods in real time.
This unique technology requires zero ground equipment and provides
governments and communities with accurate and trustworthy flood
monitoring in almost 20 markets worldwide.\10\
---------------------------------------------------------------------------
\10\ Asia-Pacific Economic Cooperation, ``From Platforms to
Payments,'' Small and Medium Enterprises Working Group, 2022, https://
globalinnovationforum.com/events/apec-workshop-sme14-2019a/.
Digital tools are of particular importance to women-owned small
businesses. A Visa Economic Empowerment Institute survey found that
newer firms are increasingly ``born digital and newly established
women-led small businesses are particularly highly digitized: strong
majorities use online stores and some forms of digital payments,
including mobile payments, QR codes, established e-commerce payment
---------------------------------------------------------------------------
providers, and new entrants in the payment space.''
The particular importance of digital trade during the pandemic is
clearly illustrated by U.S. export data. Nationally, services exports
remain below their 2019 peak. As shown in the graph below, the decline
is wholly due to a sharp decrease in services provided to foreigners
that typically are conducted in person. For example, U.S. exports of
personal travel services declined by $88 billion (-78 percent) from
2019 to 2021 despite a slight rebound last year. Related export sectors
fared similarly poorly, with large declines in U.S. exports of
including business travel services (-64 percent), passenger fares (-68
percent), equipment installation and repair (-55 percent), and
education (-13 percent).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Contrast that with exports of digitally enabled services that
have been especially strong during the pandemic years. Digitally traded
services exports increased by $74 billion (+14 percent) from 2019 to
2021. In fact, U.S. exports of digitally traded services have increased
every year since 2011. Between 2019 and 2021, there was strong growth
in U.S. exports of purely ``digital'' services such as customized
software services (+27 percent) and cloud computing and data storage
(+21 percent) as well as potentially digitally enabled services such as
business management and consulting (+36 percent), financial management
and advisory services (+29 percent), and legal services (+24 percent).
Digitally tradable services have not grown enough to offset all of the
COVID-19-related services export declines, but have certainly helped
mitigate the damage.
The national trends extend as well to every U.S. State represented
by a member of the trade subcommittee. According to estimates from
Trade Partnership Worldwide,\11\ every State saw increased exports of
digitally tradable services between 2019 and 2021 but a decline in non-
digitally trade services over the same period. In Chairman Carper's
home State of Delaware, 2021 services exports exceeded their 2019
levels on the strength of digitally tradable exports including
financial and insurance services. CSI prepared reports for each U.S.
State detailing the importance of services and digital trade to each
State; you can see the reports for each member of the trade
subcommittee here:
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\11\ Trade Partnership Worldwide, LLC, CDxports database, https://
tradepartnership.com/data/cdxports-and-cdxjobs/.
_______________________________________________________________________
Colorado New Jersey
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Delaware North Carolina
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Idaho North Dakota
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Indiana Ohio
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Iowa Oklahoma
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Louisiana Oregon
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Maryland Pennsylvania
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Massachusetts Rhode Island
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Michigan South Carolina
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Missouri South Dakota
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Montana Texas
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Nebraska Virginia
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Nevada Washington
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New Hampshire Wyoming
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how can good digital trade policy support the american economy?
A robust U.S. trade agenda for services and digital trade is
especially important for several reasons. First, it is an important
means to promote democracy, freedom, access to information, and other
core American values and press back against authoritarian regimes.
Second it is an important avenue to redress barriers to digital
services trade by ensuring non-discriminatory treatment of U.S. firms
abroad and promoting enforceable harmonization of standards and
disciplines with trade partners, whether those participating in the
Indo-Pacific Economic Framework (IPEF), with the EU, UK, Taiwan, Kenya,
the WTO and Latin America. Working to gain support of trade partners to
promote democratic values and to achieve harmonization of disciplines
and standards is important to ensuring their effectiveness. Third,
digital trade is an increasingly important source of new jobs and we
need to ensure that American workers--both blue and white collar--are
ready to take advantage of those jobs. We also need to ensure the
benefits of the digital economy and digital trade flow across the
economy, especially to small businesses, and underserved communities.
promoting american values
U.S. engagement on digital trade topics in bilateral, regional, and
multilateral forums is a crucial opportunity for the U.S. to advance
its vision of a free and prosperous trading regime anchored in American
democratic market values. Other governments, including China, are
actively working to shape the rules of the road for digital trade,
often at odds with democratic values and the principles of openness and
transparency. We also recognize the seriousness of national security
concerns that China's digital policies have raised. In recent years, we
have seen countries in political transition--like India, Brazil,
Turkey, Vietnam, Pakistan, Indonesia, and Nigeria--rapidly adopt and
adapt restrictive Chinese and Russian models of digital regulation,
premised on sovereignty, censorship, surveillance, and security. The
2022 Freedom House report \12\ notes that ``governments are breaking
apart the global Internet to create more controllable online spaces,''
with a record number of national governments blocking websites--mostly
from sources outside of the country--with nonviolent political, social,
or religious content.
---------------------------------------------------------------------------
\12\ Freedom House, ``Freedom on the Net 2022: Countering an
Authoritarian Overhaul of the Internet,'' https://freedomhouse.org/
report/freedom-net/2022/countering-authoritarian-overhaul
-internet.
U.S. engagement in negotiations to draft and implement
international digital trade agreements is especially important to
counteract China's protectionist and authoritarian whole-of-government
approach to shaping the rules of the road on digital trade. In fact,
China recently released its 5-year digital economy plan that clearly
articulates its protectionist ambitions in this arena. China has also
extended its influence on digital policies and standards at the World
Trade Organization, the International Telecommunications Union (ITU),
APEC and in the recently concluded RCEP, the world's largest trading
bloc which accounts for 30 percent of global GDP, and does not include
the U.S. China is also seeking accession to the CPTPP agreement--a
high-standard trade agreement which the U.S. led and left--and the
Digital Economy Partnership Agreement (DEPA). China's industrial
policies and unfair subsidies benefit Chinese companies and unlevel the
playing field for U.S. firms operating in the region, especially in the
ICT sector. To be truly effective we need to gain the support of our
trade partners in engaging in this effort.
addressing digital barriers and creating effective digital disciplines
We need to address the very real threat of increasing
discriminatory foreign barriers to services and digital trade. As a
primary example, data localization and data residency requirements are
proliferating. Countries around the world--including some U.S. trading
partners--are passing increasingly restrictive digital rules that
disadvantage U.S. companies. For instance, the EU regulatory agenda
includes policies such as discriminatory digital taxes and
discriminatory cloud cybersecurity restrictions that undermine the
ability of U.S. firms to access the EU digital market on an equal
footing. These depart from a shared principles-based approach to
regulation. We hope the U.S. Government will press the EU to provide
clarification on compliance with the EU's Digital Markets Act and
Digital Services Act. Both are sweeping pieces of legislation with
complex requirements, and it will be important to ensure they are not
implemented in a discriminatory or unduly burdensome manner.
This is a time when like-minded partners with shared values should
be standing shoulder-to-shoulder to defend basic democratic values
through a rules-based trade system that adheres to long standing norms
of non-discrimination and openness.\13\ Instead, such measures,
particularly when imposed by allies, can undermine technological
cooperation between trading partners. In the meantime, countries with
authoritarian tendencies and with weak legal systems and rule of law
are beginning to copy and further misuse these regulatory templates
that undermine a transparent and non-discriminatory rules-based system
for the global digital economy.
---------------------------------------------------------------------------
\13\ For specific CSI digital priorities with the EU, see letter
from CSI to U.S. Trade Representative Katherine Tai, November 21, 2022,
https://uscsi.org/wp-content/uploads/2022/11/20221121-EU-digital-
concerns-letter.TTC_.Amb_.-T.pdf.
These not only pose major trade barriers to U.S. exports, but they
also enable increased authoritarian influence, censorship and
surveillance, while leaving networks vulnerable to cybersecurity risks
and malicious interference. The Organisation for Economic Co-operation
and Development (OECD) found that the services regulatory environment,
particularly for foreign investment, became more restrictive in 2020
and the pace of tightening has accelerated.\14\ The resulting
``regulatory divergences'' are raising cross-border costs as activities
need to be aligned across multiple regulatory frameworks.''\15\
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\14\ Organisation for Economic Co-operation and Development, OECD
Services Trade Restrictiveness Index: Policy trends up to 2021,
February 2021, https://issuu.com/oecd.publishing/docs/oecd-stri-policy-
trends-2021.
\15\ Organisation for Economic Co-operation and Development, op.
cit.
CSI has provided the administration with further detailed
recommendations (https://uscsi.org/wp-content/uploads/2022/03/CSI-
Calls-for-an-Ambitious-Indo-Pacific-Econom.pdf) on these points, which
we are happy to share with subcommittee members. We would however like
to highlight a number of the areas we have included in our
---------------------------------------------------------------------------
recommendations.
1. Cross-border Data Flows and Prohibitions on Data Localization:
Cross-border data flows are the life blood of the digital economy and
we believe that the cross-border data flow data and data localization
provisions included in the bi-partisan USMCA agreement should be
included in other trade agreements. As noted above, the rise of data
localization is pernicious and can enable authoritarian influence and
censorship.
2. Non-Discrimination for Digital Products: U.S. digital services and
content providers should be granted non-discriminatory treatment in
foreign markets and allowed to compete on a level playing field with
their foreign competitors. We oppose the imposition of discriminatory
regulations which tilt the playing field in favor of domestic
champions.
3. Permanent Moratorium on E-commerce Duties: This element should
also be included to cover digital services and products as it was in
the U.S.-Japan Digital Agreement. This provision is especially
important for SMEs, for those involved in research and development in
medical as well as commercial sectors and app developers who are
frequently small businesses. Should the moratorium be allowed to lapse,
exporters could face a chaotic Customs regime with potentially non-
administrable Customs duties which would disproportionately hurt SMEs.
Likewise, small businesses in developing companies would be similarly
disadvantaged in terms of their access to software and app imports.
Further, allowing the moratorium to lapse would be counterproductive to
U.S. efforts to strengthen the domestic semiconductor industry, which
relies on the ability to electronically transmit software and design
information on a cross-border basis.
For similar reasons, we believe the WTO moratorium on e-commerce
duties should also be extended at MC 13. We note in the WTO context
that imposing duties on digital services could raise questions of GATS
inconsistency. Although there is widespread support for continuation of
the e-commerce moratorium among developing countries, including
Malaysia, Thailand, Caricom countries, Nigeria, Mauritius, and even
LDCs such as Zambia, some developing countries continue to want
assurances about policy space to develop their digital industries. We
believe these issues should be fully discussed in the WTO including
alternative but WTO-consistent options to the imposition of tariffs.
In addition, imposing digital tariffs on e-commerce would
essentially amount to a digital services tax and would be at odds with
work towards implementation of an agreement at the OECD on a global
minimum tax.
4. Prohibition on Mandatory Transfer of Source Code and Algorithms:
We believe that this provision should also be included in any set of
digital disciplines as included in USMCA and the U.S.-Japan Digital
Agreement. This provision is an important protection against the
unauthorized mandatory transfer of software source code and algorithms
contained in such code. It does not however, prohibit a regulator or
judicial authority from requiring a person to preserve and make
available source code in instances where there is a specific
investigation, inspection, enforcement action, or judicial proceeding.
5. Greater Cooperation in Cybersecurity: Provisions on cybersecurity
cooperation that assume a ``risk-based'' approach should be included.
Such an approach should be based on principles that are performance-
based, rather than prescriptive; proportionate, rather than one-size-
fits all; and that utilize industry standards.
6. Adopting Best Practices in the Use of Artificial Intelligence
(AI): Use of AI is becoming an increasingly pervasive and powerful tool
in expanding the digital economy. It is important that its use be
subject to best practices, such as the OECD AI principles with the goal
of eventually reaching agreement on harmonized AI disciplines that will
ensure transparent, nondiscriminatory use of AI and protect against
abuse.
7. Applying Good Regulatory Practices to Digitally Enabled Services
Standards and Conformity Assessment: CSI believes that new disciplines
applying good regulatory practices, transparency, and nondiscrimination
to digitally enabled services standards and conformity assessment
procedures would benefit all services exporters, but they would be of
particular value to smaller services firms. SMEs are less equipped to
bear the higher costs and greater trade frictions that have resulted
from growing digital fragmentation. Indeed, OECD analysis has shown
that in relatively more restrictive services markets, new exporters
confront costs as much as 53 percent greater than those faced by
incumbent exporters. Addressing barriers to services trade in the form
of trade-restrictive standards and conformity assessments would
especially benefit SMEs seeking to expand services exports.
Increasingly, governments are implementing mandatory, unique national
standards and technical regulations that are not interoperable and
create barriers to trade and technological progress. The resulting
fragmentation has created an urgent need to update the standards-
related rule book for trade in digitally enabled services. It is
important to note that trade disciplines on standards for digitally
enabled services are highly compatible with a government's right to
regulate and would in no way undermine that right.
8. Provision of Greater Capacity Building and Digital Tools to SMEs:
Parties to any new digital initiative should agree to provide more
assistance in the form of digital tools and capacity building to SMEs.
9. Promotion of Worker Digital Upskilling: Yet another way in which
policymakers can support American workers is to collaborate with
American businesses to ensure that our educational system is ready to
train students with the required skills to meet the requirements of
jobs needing digital competencies. As services and other jobs
increasingly demand digital skills obtainable by both professionals and
the high school educated, both government and industry must do more to
equip individual workers with the requisite training. A study by
Brookings found that nearly two-thirds of the new jobs created between
2010 and 2016 required at least a moderate level of digital skills.\16\
The same report found that nearly a quarter of workers were already
engaged in occupations with a high level of digital content. It also
concluded that holding education constant, workers with better digital
skills tended to earn higher wages than those with lower skills.
Government and companies should collaborate to improve education and
training programs. For example--just one of many--is ``Girls4Tech,''
Mastercard's signature education program, which was launched in 2014 to
drive the interest of young girls in science, technology, engineering
and math (STEM). The curriculum is designed to teach participants
curiosity, develop an innovative mindset and take a smart approach to
solving everyday challenges using technology. Ultimately, the program
aims to help bridge the skill gap in the technology industry.
Girls4Tech is tailored for girls ages 8-16 to encourage their interest
in cryptology, digital convergence, algorithms, biometrics, AI, and
more. Many others engage in extensive digital skills training program,
for example CISCO offers certificate level training programs for high
school graduates at community colleges. A catalogue of CSI member
programs is provided here (https://v8v669.a2cdn1.secureserver.net/wp-
content/uploads/2021/10/CSI-member-workforce-dev-programs.pdf), and we
would welcome your engagement with us on ways to make these kinds of
programs more broadly available to American workers.
---------------------------------------------------------------------------
\16\ Mark Muro, Sifan Liu, Jacob Whiton, and Siddharth Kulkarni,
Brookings, Digitalization and the American Work Force, November 15,
2017, p. 15.
In the IPEF context, CSI members understand that in order for the
Indo-Pacific region to grow and thrive, workers, small businesses,
institutions, and governments must have the knowledge and skills to
participate in the digital world. To that end, CSI member firms have
developed innovative programs and partnerships that promote women-owned
small businesses, capacity building, financial inclusion and education,
cybersecurity training, digital infrastructure development, and worker
skilling. We would similarly welcome the opportunity to engage with
Congress on ways to collaborate and integrate such programs in the
---------------------------------------------------------------------------
IPEF.
10. Trade Facilitation Measures: Agreements that promote the
implementation of measures that facilitate trade also benefit American
workers and their employers. Many of those measures are digital in
nature--e.g., filing entry paperwork online, or even consistent online
publication of current tariff schedules, regulations, and forms for
customs clearance. The U.S. de minimis threshold must be protected
along with other measures that reduce red tame for SME exporters and
importers. In a similar manner, measures such as the General Product
Safety Regulation, are of concern for small businesses selling to the
EU. One study found that if all countries implemented the same trade
facilitation measures currently employed in the United States, U.S.
employment would expand by nearly 1 million jobs, of which 79 percent
would be at small businesses.\17\
---------------------------------------------------------------------------
\17\ Gabe Horwitz, ``Reducing the Red Tape Around Supply Chains,''
Third Way, July 25, 2022, https://www.thirdway.org/report/reducing-the-
red-tape-around-supply-chains.
The IPEF discussions present an opportunity to address some of
these problems. Deepening commercial ties with the Indo-Pacific region
is key to U.S. services sectors, which are increasingly digitally
delivered and a key enabler of Indo-Pacific trade in all sectors. In
2021 alone, the value of U.S. services exports to the Asia-Pacific
region was $180 billion, of which $124 billion were digitally enabled
services.\18\ As more countries in the region develop regulatory
regimes focused on the digital environment, an increasing number of
them are using the opportunity to impose discriminatory protectionist
measures. These policies include overly broad, arbitrary foreign
investment restrictions, data transfer restrictions, targeted
curtailment of U.S. market access, data localization requirements,
cloud services barriers, nationality of ownership restrictions, quotas,
and discriminatory standards, among others. A high-standard digital
trade agreement in the Indo-Pacific with binding rules is needed to
counter the promulgation of such discriminatory measures, which
disadvantage U.S. workers and employers not just in the services
sectors, but across the economic spectrum. We note that greater
integration, cooperation, and high-ambition digital standards in the
IPEF region is a key part of U.S. national security strategy as well.
---------------------------------------------------------------------------
\18\ Trade Partnership Worldwide, LLC, CDxports database.
Longstanding trade principles of non-discrimination, transparency,
openness, and interoperability should take center place in the trade
module of the IPEF. It should also include a consultation mechanism and
other means to raise member concerns and to hold members accountable.
It is also critically important that these disciplines be legally
binding enforceable. We also believe that these disciplines can be
developed consistent with the long recognized trade agreement principle
of recognizing the importance of respecting government's right to
---------------------------------------------------------------------------
regulate.
We also believe that Congress has an important role to play in
shaping these disciplines and that full and regular consultation and
transparency must be a part of their development. In this regard
support a bipartisan extension of Trade Promotion Authority.
conclusion
Thank you for the committee's attention to these critical issues.
We believe that creating strong disciplines on digital trade are
important to promote job creation and competitiveness across all
sectors of the economy and to advance American values abroad. We look
forward to working with committee members and the administration to
support this effort.
______
Prepared Statement of Hon. Thomas R. Carper,
a U.S. Senator From Delaware
Good afternoon. It's my pleasure to call this hearing before the
Senate Finance Subcommittee on International Trade, Customs, and Global
Competitiveness to order. Thank you to our witnesses for joining us to
testify today. And I want to say a special ``thank you'' to our
subcommittee's ranking member, Senator Cornyn--as well as Chairman
Wyden and Ranking Member Crapo, and their teams--for working with both
Senator Cornyn's and my staff to plan this hearing on digital trade.
Today's hearing will offer an opportunity for us to answer three
central questions. First: what is digital trade, anyway? Second: why is
it important to Americans? And finally: how can we work with our allies
to strengthen our ever-changing digital economy? Today's hearing will
also be the first Senate hearing in this Congress to specifically
explore the importance of digital trade. I'm glad we can take this
dedicated time, in a bipartisan way, to dive into this critical issue
with leading experts across our Nation.
When I first started learning about digital trade, I quickly
discovered it is necessary for us to better understand and appreciate
how digital technologies and the Internet have transformed our economy.
I'd like to take just a couple of moments to talk about this through an
example that we have all come to know very well: smartphones.
Smartphones are everywhere in our society--nearly everyone I know
has one, and it's almost impossible to imagine our lives today without
them. We use them for everything: from checking work emails to logging
into a Zoom meeting to purchasing goods from halfway around the world.
Whether you're booking a hotel in Dover, DE or Dover, England,
smartphones have made our lives more accessible to just about
everything.
These are just a few examples in our daily lives that show how
digital connectivity makes it easier, faster, and less expensive to
trade goods and services across the globe. And this is all made
possible because the Internet has made it easier for us to share
information and data without geographic barriers. Without these
tangible barriers, digital innovation has revolutionized nearly every
industry across our economy, ranging from manufacturing to agriculture
to financial services to e-commerce--you name it!
As a result, trading goods and services, with a lot of help from
the Internet, has exploded in recent years. Just look at the numbers:
from 2005 to 2019, real value added for the U.S. digital economy grew
at an average annual rate of over 5 percent per year, outpacing the 2-
percent growth in the overall economy each year. And the pandemic has
spurred digital growth even more, with people staying home and turning
to the Internet to access medical services, stream their favorite
movie, or book that next vacation in the first State, another State, or
around the globe.
And this growth isn't just benefiting consumers--it's also spurring
job creation and enabling small businesses to thrive. With the digital
economy, a small business that sells jewelry in Delaware or Texas can
now sell their products to anyone, anywhere in the world with ease.
However, it's critical that as we examine the importance of digital
trade for our economy, we must also acknowledge how digital
technologies affect our national security. Right now, we are witnessing
a global battle over the values that govern the digital economy.
Foreign adversaries like China are using digital technologies to
advance authoritarianism and crack down on freedom of speech and human
rights. They are working overtime to shape the digital economy in a way
that threatens our democratic values and jeopardizes our national
security.
Yet as Albert Einstein once said, ``In adversity lies
opportunity.'' And that's exactly what we have before us today: a real
opportunity to set rules of the road for digital trade that reflect our
values. Those words were true then, and are even truer today. So far,
the U.S. has taken a leadership role through negotiating ambitious
digital rules in the USMCA agreement with Canada and Mexico and through
digital trade cooperation with Japan--but that's not enough. Our work
cannot stop there.
That's why this past July, my staff and I worked closely with
Senator Young and his staff and other members of this committee to
introduce a bipartisan, bicameral resolution advocating for the United
States to work with our allies across the globe to establish forward-
looking global digital trade policies.
I'm also eager to work with U.S. Trade Representative Katherine Tai
and the Biden administration to make progress on these important issues
as they negotiate the Indo-Pacific Economic Framework and other
economic engagements related to digital trade.
In that spirit, today I look forward to hearing from our esteemed
panel of witnesses as they pull back the curtain on the importance of
digital trade and how we can work with our allies to advance thoughtful
digital trade policies. And with that, I'd like to turn it over to
Senator Cornyn for his opening statement.
______
Prepared Statement of Hon. John Cornyn,
a U.S. Senator From Texas
Thank you, Mr. Chairman, for organizing this hearing. It's been a
pleasure as always working with your staff, and thanks to all of our
witnesses for being here and sharing their expertise and knowledge. I
like the three questions that you plan to ask or have teed up here.
This subcommittee has consistently focused on the threat that China
poses to our national security through its weaponization of trade,
contrary to the international rules-based system that we thought they
were joining when they became part of the WTO.
On that note, I want to express my concerns with regard to reports
that our allies in Europe may retaliate for provisions of the recently
passed Inflation Reduction Act. In the face of existential challenges
posed by the Chinese Communist Party and its allies in the Russian
Federation, a strong relationship with our partners in Europe is more
important than ever.
Unfortunately, legislation passed on a purely party-line vote, like
the Inflation Reduction Act, has moved us in the wrong direction. And I
hope the administration will work to limit the trade ramifications from
this bill with regard to Europe and our other allies. We all know that
the results of protectionism helped put us into the Great Depression
nearly a century ago, and we simply cannot afford to repeat it or get
anywhere near it.
On this subcommittee, we've advocated for the U.S. to join the
CPTPP, which was a mistake for us to walk away from in the first place.
I was with Senator Hagerty, the former Ambassador to Japan, now a
member of the U.S. Senate, and Senator Cardin, our colleague on the
Finance Committee, in Japan recently. In every single meeting we had
with our Japanese Government counterparts, they mentioned the TPP. And
Senator Carper and I have written and spoken together on what a mistake
it was for us to walk away from that. And my hope would be at some
point we would get back in the game in Asia with the CPTPP.
Unfortunately, so far the Biden administration has refused to
reopen negotiations on that agreement. So we need to look to sectoral-
specific free trade agreements that focus, for example, on digital
trade. This was also part of the conversation we had with Ambassador
Emanuel in Japan when we were there. As each of our colleagues know,
free trade agreements passed through Congress are insulated from
domestic political pressure. They provide long-term certainty for our
businesses and reinforce the key economic relationships that we have
with our friends and allies.
We've also focused on China's use of censorship as a barrier to
digital trade in particular. We see today how China is weaponizing its
digital infrastructure against its own citizens for simply protesting
in the streets. One of the first tasks we should explore is how to
define digital trade, which is the question Chairman Carper raised
first--and appropriately so. For everything digital or virtual--from
the cloud to artificial intelligence--there is obviously an underlying
physical element. For digital trade, that medium is semiconductors, so
maybe we should start by using that physical apparatus as a starting
point for our discussions.
The second area we should explore is how digital trade agreements
help to solidify our relationship with our friends and allies against
the threat posed by the Chinese Communist Party. So I believe any
digital trade agreement with our allies and partners should include
provisions that incorporate disciplines on semiconductors as part of
it. That includes things like coordination of semiconductor incentives,
harmonization of our export controls with regard to China, and supply
chain resiliency.
Finally, most importantly, we should find common areas of agreement
amongst all stakeholders to include business, labor, and national
security. That includes topics like preventing data localization and
forced technology transfers. We should have free and open digital trade
facilitation with clear rules of the road. For example, we should not
be taxing electronic transmissions between our borders, or forcing data
centers to be located in one nation or another. As with all issues
pertaining to China, that will require a fair amount of discussion,
debate, and even compromise.
So I look forward to hearing from our witnesses today, who
represent a facet of each of those.
I'd like to welcome Mr. Feith for the national security
perspective, Mr. Woodall for the labor community, Ms. Bliss from
industry, and Mr. Meltzer from the think tank community that's
important to give us the intellectual firepower we need to make good
decisions here in Congress. So thank you all for being here today, and
I look forward to hearing from you.
______
Prepared Statement of David Feith, Adjunct Senior Fellow,
Indo-Pacific Security Program, Center for a New American Security
Chairman Carper, Ranking Member Cornyn, and members of the
subcommittee, it is a privilege to appear before you today. Thank you
for your invitation.
This hearing addresses digital trade, and I will focus my testimony
on the national-security problems in this area posed by China--
specifically, concerns about China's open access to American data.
I want to stress three points.
First: The importance of recognizing the China challenge. China is
an outsize player in global digital trade flows. It is implementing
aggressive strategies of data control, data exploitation, and data
mercantilism. U.S. policy is not yet answering those strategies.
Second: The United States not only should work overseas to expand
our digital trade arrangements, we also have urgent work at home. Our
domestic task is to curb the massive unregulated flows of sensitive
data to China. Our trading partners in Europe, Asia and beyond face the
same challenge, even if some fail to recognize it.
Third: Immediate action can be taken in at least three areas: (a)
to ban TikTok and the TikToks yet to come, (b) to begin controlling
exports of Americans' biodata, and (c) to implement the so-called
``ICTS'' process endorsed by both the previous and current
administrations but not yet in use to limit U.S. data flows to China.
the china problem in digital trade
In our unfortunately polarized politics, it is an important sign of
health that there is strong bipartisan support for countering China's
national security threats. There is also bipartisan support for
boosting U.S. digital trade links overseas.
The digital economy accounts for some 10 percent of U.S. GDP;
digital trade contributes more to U.S. GDP than financial or
merchandise flows; and digital trade is growing faster than traditional
trade in goods and services. There is particularly strong support for
increasing such trade with the Indo-Pacific, where the United States
has vital interests and strong allies and partners eager to work with
us to prevent China from achieving regional hegemony.
But to set new global rules for the data age, and to compete with
China, it is not enough to expand digital trade with friends. We also
need to limit our digital trade with China. And we need to take action
not just overseas but at home. Our challenge is how to begin placing
national-security controls on data flows to and from China. We are late
in addressing this challenge. If we don't do so soon, the national-
security costs may be so high that they will far outweigh the benefits
of any improvement in trade rules with our foreign friends. Our
failures in domestic regulation may severely limit our ability to shape
rules abroad.
A necessary first step is understanding China's approach to digital
trade, which has long been far more strategic, mercantilist, and non-
reciprocal than U.S. policy has recognized. It is a key element of
China's national-security strategy.
For nearly a decade, Chinese leader Xi Jinping has declared that
data in the 21st century is like oil in the 20th century: the critical
input for fueling economic strength and national power. In 2013, he
told his state-run Chinese Academy of Sciences:
The vast ocean of data, just like oil resources during
industrialization, contains immense productive power and
opportunities. Whoever controls big data technologies will
control the resources for development and have the upper hand.
The analogy between data and oil later became something of a cliche
in certain circles. But U.S. policy never recognized its logic. China's
did.
The Chinese Communist Party developed a comprehensive strategy to
control, accumulate, and exploit data. Data such as personal health
records, personal genetic sequences, and personal online browsing
habits. Data such as corporate trade secrets, corporate supply chain
records, and corporate financial accounts. Data such as the photos,
voice recordings, and mapping imagery pulsing through phones, drones,
and smart cars all around the world.
Beijing recognizes that the competition for global influence in the
21st century will require protecting and harnessing such data to
achieve commercial, technological, military and intelligence
advantages. And that's what it is doing.
Beijing has built a latticework of laws and regulations to make the
Chinese Communist Party the world's most powerful data broker. A set of
laws implemented in 2017 gave the Communist Party unchecked access to
private data on Chinese networks, whether those networks are in China
or associated with Chinese firms such as Huawei overseas. Last year,
Beijing enacted additional laws that go even further, demanding not
just access to private data but effective control over it.
This has a huge impact on foreign firms operating in China. Not
only must their Chinese data stay in China and be accessible by the
Chinese state, but Beijing now demands control over whether those firms
can send the data to their own headquarters; or to a corporate lab in,
say, California; or to a foreign government that has made a lawful
regulatory or law-enforcement request. Under Beijing's new laws, it may
be criminal to comply with foreign sanctions against China that involve
data. So if the U.S. Government, for example, wants to shut off banking
or cloud services to a Chinese entity linked to human rights
atrocities, a U.S. or other company can comply with U.S. law, or it can
comply with Chinese law, but not both.
Boxed in by Beijing, Tesla, Apple, and others have opted to build
dedicated Chinese data centers--sometimes in partnership with Chinese
state entities, lest they lose access to the large Chinese consumer
market and valuable manufacturing supply chain.
Beijing's bullying data rules inside China complement its
longstanding efforts to buy, steal, and otherwise acquire data from
outside of China. Beijing hacks foreign corporate databases. It runs
``talent recruitment'' programs at foreign universities and firms. It
buys foreign companies. And it funds its own data-driven companies to
conduct research, forge partnerships, win customers, and vacuum up data
in open foreign markets like Silicon Valley, Boston, and Austin.
Beijing's data strategies also prize global propaganda, censorship,
and influence, all to advance Xi's stated goal of winning the digital
``public opinion struggle.'' Xi wants the Chinese Communist Party to
have what he calls ``discourse power,'' meaning the ability to set and
shape global narratives. Hence his aggressive regulation of the
algorithms and other data technologies that power Chinese apps such as
TikTok that are increasingly dominating the U.S. social media market.
TikTok enables Beijing not only to harvest mass American data but to
transmit favored messages, export censorship preferences, and
potentially manipulate and mobilize Americans on a grand scale
completely without precedent for a foreign power.
Beijing's approach is nakedly non-reciprocal. It relies on access
to data from foreign countries while denying foreigners access to data
from China. In China, Beijing controls the data of foreign companies.
Outside of China, Chinese companies operate comfortably, creating and
accessing valuable new data sets primed for easy transfer back to China
in all manner of data-intensive fields--biotech, pharmaceuticals,
medical devices, drones, autonomous cars and trucks, social media,
digital payments, e-commerce, and more. These data flows to China
contain massive quantities of information about American citizens,
American companies, American government, and American critical
infrastructure.
This is the stuff of digital trade. Yet there are effectively no
rules governing any of it. There is nothing effective under the World
Trade Organization or any U.S.-China bilateral trade accord, and not
under U.S. domestic law either. The United States has no comprehensive
Federal approach to data governance. Because of the nature of the
internet--namely, that it was able to expand globally in a permissive
environment, without any of the state controls inherent with
traditional goods transported by truck or ship--digital trade
(including U.S.-China digital trade) has remained fundamentally
unregulated.
In this environment, for upwards of a generation, Beijing has been
effective in designing a strategy of global data mercantilism: hoarding
and controlling data for me, relinquishing and exposing data for thee.
If the United States and our allies do not organize an effective
response, Beijing will succeed in commanding the heights of future
global power. Any new digital-trade arrangements we make with our
partners would still operate in the shadow of a global digital-trade
order that is open to fatal exploitation by Beijing.
the domestic regulatory imperative
The Biden administration has spoken about the importance of data in
our competition with China. ``Our strategic competitors see big data as
a strategic asset, and we have to see it the same way,'' said National
Security Adviser Jake Sullivan in 2021. But no visible strategy has
emerged.
The U.S. Government has traditionally had no mechanism for limiting
cross-border data flows, even on national-security grounds. Traditional
national-security restrictions on commerce are designed to address
other issues, and they have historically been narrowly scoped,
consistent with important American traditions of limited government.
The Committee on Foreign Investment in the United States (CFIUS)
screens inbound investment. Export controls restrict outbound flows of
U.S. goods and technology (and of some data, in limited cases).
Procurement restrictions limit what Federal Government departments and
agencies can buy.
But vast areas of economic life are largely or completely untouched
by those tools--including the cross-border exchange of data by private
companies, individuals, academic institutions, and State and local
governments. When a U.S. hospital system wants to partner with a
Chinese pharmaceutical or genomics company, or an American teenager
wants to download a Chinese social-media app onto her phone, or your
State government wants to procure Chinese drones to monitor the power
grid or assist in law enforcement, the Federal Government has
traditionally had no way to regulate such activity to protect national
security.
Washington began to address this problem only recently, through the
creation--at least on paper--of a new regulatory regime for reviewing
cross-border data flows. Known as ``ICTS'' (for Information and
Communications Technology and Services), this regime was established in
the previous administration's waning days and maintained by the Biden
team through a June 2021 executive order on ``Protecting Americans'
Sensitive Data From Foreign Adversaries.'' Under the ICTS process, a
Commerce-led interagency panel can investigate, modify, block, or unwind
data-related commercial transactions believed to present ``undue or
unacceptable risks'' to U.S. national security.
This ICTS panel has authority across six sweeping sectors: critical
infrastructure; network infrastructure, including satellites, wireless
networks, and cable access points; data hosting, including services
with the personal information of more than 1 million Americans;
surveillance and monitoring technology, including drones;
communications software, including mobile and gaming apps; and emerging
technologies, including artificial intelligence and autonomous systems.
These sectors touch nearly the entire modern economy.
But the ICTS process has not yet been put to use--not against
Chinese access to U.S. data centers or biotech labs, not against
Chinese drones with eyes on U.S. critical infrastructure, and not
against other channels through which large volumes of sensitive U.S.
data can flow to China.
Apart from ICTS, the Congress could of course consider legislative
approaches. Various bills have been proposed to limit the ability of
Chinese apps to operate and collect data in the United States, but
without success.
Another idea is to create a new export-control category to restrict
the sale of bulk personal data to certain foreign countries. This is
the essence of the ``Protecting Americans' Data from Foreign
Surveillance Act'' introduced in June by Chairman Wyden of this
committee, with four Republican and Democratic cosponsors. But the fate
of that bill is uncertain, and the issue of Beijing's data mercantilism
was largely unexamined in the congressional work that resulted this
summer in the CHIPS and Science Act.
Elsewhere on Congress's agenda, there is the risk that efforts
intended to rein in domestic big tech platforms could end up imposing
stricter standards on American firms than on Chinese ones. This would
be perverse in terms of commercial competition and U.S. national
security.
the international path to ``data free flow with trust''
Also perverse is our longstanding failure to work with our allies
(especially in Europe) to address China's digital-trade abuses as part
of our international trade diplomacy.
Across effectively the entire era of digital trade, we have been at
cross-purposes with Europe over data-privacy rules, while far greater
data-related harms from Beijing have mounted. Chinese companies
processing European data are in principle subject to localization and
privacy-protection requirements under the European Union's General Data
Protection Regulation (GDPR). But the EU has to date shown no great
concern with mass data collection and exploitation by Chinese companies
functioning as extensions of the Chinese state--especially compared
with the EU's longstanding rage against U.S. big tech.
To be sure, there is a new test case involving TikTok. The Irish
Government recently investigated the Chinese platform's data practices
and sent findings to the EU Data Protection Commission. Brussels has
yet to report back.
In the Indo-Pacific, the dynamic is more fluid. The 11-nation
Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)
includes high digital standards consistent with those of the U.S.-Japan
Digital Trade Agreement (2019) and USMCA (2020), both of which were
crafted with Beijing's abuses in mind.
Beijing prefers lower digital-trade standards, like those in the
Regional Comprehensive Economic Partnership (RCEP) agreement, to
protect its mercantilist and authoritarian interests. That is why it is
now pushing to join both the high-standard CPTPP and the non-binding
but potentially high-standard Digital Economic Partnership Agreement
involving Singapore, New Zealand and Chile--to try to shape (that is,
restrain) their standards from the inside. Beijing realizes that
digital-trade flows are still overwhelmingly unregulated, and it wants
to influence whatever might emerge to fill this international
regulatory gap.
Important as it is, keeping Beijing from entering CPTPP against the
rules is not enough. Fashioning a high-standard Indo-Pacific digital-
trade agreement would be good. So would beginning to impose reasonable
national-security restrictions on U.S.-China data flows, followed by
consultations to encourage partners to do the same.
The concept that combines these two elements--digital-trade
expansion with friends, digital-trade limitation with rivals--is what
late Japanese Prime Minister Shinzo Abe called ``Data Free Flow with
Trust'' (DFFT). We should maximize data trade with those we can trust
and limit data trade with those we cannot. In other words, more data
flow among democratic allies and other like-minded countries, and less
data flow with China.
DFFT is a simple notion that will be hard to implement given
China's size, strength, and deep integration into our digital economy
and that of our allies. It is necessary, however. We are overdue in
recognizing data as a strategic resource. Our responsibility now is to
design a global digital-trade order that reflects democratic values and
not Beijing's.
three immediate opportunities for action
U.S. legislators and policymakers can prioritize immediate action
in at least three areas:
1. TikTok--and the TikToks to Come: As the Biden administration
reviews TikTok via the Committee on Foreign Investment in the United
States (CFIUS), Republicans Marco Rubio and Mike Gallagher have called
for legislation to ban the app. Their approach could provide statutory
authority to overcome the statutory barriers (namely the Berman
Amendment to the International Emergency Economic Powers Act) that
caused the previous administration's attempted TikTok ban in 2020 to
fail in court. Democratic Senator Mark Warner (also on this committee)
recently endorsed a TikTok ban in principle, calling the platform ``an
enormous threat.''
TikTok's fate is an acute test of Washington's seriousness about
data privacy, counterintelligence, election integrity, and democratic
sovereignty. No hostile foreign power has an entitlement to control a
leading U.S. media platform. And keeping hostile foreign powers from
wielding such influence is a safeguard of free speech.
But TikTok's fate is also a test for other data threats looming
on the horizon. TikTok parent Bytedance has a virtual-reality
subsidiary, Pico, that wants to compete in the U.S. metaverse market
soon against Meta and Apple. Fellow Chinese tech giant Tencent operates
WeChat and other platforms in the United States. As long as such
Chinese-owned and -controlled platforms enjoy unfettered access to U.S.
consumers, Beijing will exploit that access for asymmetric strategic
advantage.
2. Biodata: For all the controversy over TikTok and the obvious
complexities in regulating a wildly popular platform, it is widely
agreed that Americans should protect their health and genomic data, on
grounds of personal privacy and national security. And yet U.S. law and
policy have not yet risen to this challenge.
The protection of biodata deserves to be at the top of
Washington's tech-competition agenda. We have seen much commendable
action in recent years on semiconductors, including initial moves by
the previous administration, the CHIPS Act this summer, and the pending
Schumer-Cornyn proposal to extend ``section 889'' Federal Government and
contractor procurement restrictions to Chinese-manufactured chips.
President Biden recently announced measures to promote domestic biotech
and biomanufacturing, but there are no corresponding protections on
biodata flows.
Meanwhile Chinese pharma and genomics companies such as WuXi
Apptec and BGI are expanding operations in the United States and
partnering with U.S. hospitals and universities. These companies answer
to Beijing's Party-state and military, part of Xi Jinping's growing
military-industrial complex for precision medicine. As the University
of Virginia's Aynne Kokas has written in an invaluable new book,
China's access to U.S. health data, especially DNA, threatens harms
``with multigenerational consequences.''
3. ``ICTS'' Implementation: The new ``ICTS'' process may be the
single best tool Washington has for addressing the multifaceted China
data problem. It is vital, then, that ICTS get off the ground with
appropriate staffing, funding, and authority. The administration may
have most or all of what it needs to activate the ICTS, but some
congressional action may be helpful, too.
Consider the wide range of problems that ICTS could address, if
appropriately used:
Data centers: The June 2021 executive order clearly
threatened Chinese firms' continued access to U.S. ``large data
repositories,'' and Commerce reportedly subpoenaed several Chinese
communications firms in early 2021. Yet no enforcement action has
followed.
Drones: U.S. officials have issued years of warnings about
Chinese drone giant DJI, which DOD recently added to a list of firms
tied to China's military. Yet DJI still dominates the U.S. commercial
drone market. Another Chinese drone maker, Autel, is growing its U.S.
sales while keeping a relatively low profile. Drones are within ICTS's
mandate but they have not been the subject of any known enforcement
action--or even investigation.
Autonomous vehicles and digital mapping: Many leading U.S.
autonomous transport companies rely on financing and engineering from
China, while facing no restrictions on the export of sensitive data
about U.S. roads and critical infrastructure. ICTS appears to have
authority to stop this, but hasn't done so.
ICTS was designed to solve all of these cases. As with TikTok
and biodata, addressing them would demonstrate prudent data regulation
at home that could be a model for digital-trade policy promotion
overseas.
China threats and digital trade are overlapping fields of
bipartisan concern. The stakes are high. Immediate action is possible
and would be valuable. The administration would benefit from
congressional action, and the American people would appreciate the
greater protection of their privacy and the strengthening of their
national security.
Thank you for the opportunity to testify. I look forward to your
questions.
* Center for a New American Security (CNAS) disclaimer: As a
research and policy institution committed to the highest standards of
organizational, intellectual, and personal integrity, CNAS maintains
strict intellectual independence and sole editorial direction and
control over its ideas, projects, publications, events, and other
research activities. CNAS does not take institutional positions on
policy issues and the content of CNAS publications reflects the views
of their authors alone. In keeping with its mission and values, CNAS
does not engage in lobbying activity and complies fully with all
applicable Federal, State, and local laws. CNAS will not engage in any
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supporters.
______
Prepared Statement of Joshua P. Meltzer, S.J.D., Senior Fellow,
Global Economy and Development, Brookings Institution
Chair Carper, Ranking Member Cornyn, and members of the
subcommittee, thank you for the opportunity to testify today.
I am a senior fellow at the Brookings Institution, where I work on
digital trade issues as well as on emerging technologies such as
artificial intelligence.
Today I will focus my testimony on the opportunities of e-commerce
and digital services trade for the U.S., with a focus on the
opportunities for small and medium-sized enterprises (SMEs). I will
also discuss evolving global AI regulation. In both these cases I will
outline how digital trade commitments--whether in Free Trade Agreements
(FTAs), Digital Economy Agreements (DEAs) or the Indo-Pacific Economic
Forum (IPEF) negotiations, can support growth in e-commerce
opportunities, in digital services trade and support AI regulation and
R&D consistent with U.S. values and strategic objectives.
what is digital trade?
There is no globally agreed definition of digital trade; however,
it is a term increasingly used to describe an ecosystem that is more
expansive than ``e-commerce,'' which is focused on trade in goods and
services purchased online.\1\ Digital trade includes the important role
of cross-border data flows, and how data and digital technologies such
as cloud computing and Artificial Intelligence (AI) can enable trade.
The Organisation for Economic Co-operation and Development (OECD)
defines digital trade as digitally enabled transactions of trade in
goods and services that can either be digitally or physically delivered
and involve consumers, firms, and governments.\2\ Underpinning digital
trade is the movement of data. Data is not only a means of production,
but also an asset that can itself be traded, and a means through which
global value chains are organized and services delivered. Furthermore,
it indirectly supports physical trade by enabling implementation of
trade facilitation.
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\1\ WTO Work Programme on E-Commerce, 1998 definition of e-commerce
is ``the production, distribution, marketing, sale, or delivery of
goods and services by electronic means.''
\2\ https://www.oecd.org/trade/topics/digital-trade/.
The increasing scope of digital trade is reflected in various free
trade agreements that now have digital trade chapters in place of e-
commerce chapters.\3\ These digital trade chapters include new
commitments such as not to prohibit cross-border data flows and require
data localization as a condition for doping business, subject to GATS
Article XIV style exceptions.\4\ Another trade policy development is
the shift to digital economy agreements (DEAs), such as the U.S.-Japan
Digital Trade Agreement or the Australia-Singapore Digital Economy
Agreement.\5\ These are digital-only agreements that often do not
include new market access and instead focus on developing the rules and
norms that can support digital trade. This includes regulation that
builds trust in data flows and facilitates e-commerce.
---------------------------------------------------------------------------
\3\ For example, the Comprehensive and Progressive Trans-Pacific
Partnership (CPTPP) and United States-Mexico-Canada Agreement (2019)
include digital trade chapters whereas the U.S.-Australia FTA (2005)
and U.S.-Singapore FTA (2004) have e-commerce chapters.
\4\ See for example USMCA Article 19.11 and Article 19.12.
\5\ Agreement between the United States of America and Japan
Concerning Digital Trade.
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opportunities from digital trade
Digital trade commitments, whether in FTAs or DEAs, can deliver
potentially significant economic gains. The most recent assessment of
the economic impacts of digital trade commitments was the U.S. ITC
assessment of the economic impacts of USMCA that was published in April
2019.\6\ According to the ITC assessment, a key driver of the economic
gains for the U.S. from the USMCA come from its digital trade chapter.
These rules were found to have a significant, positive impact on
industries that rely on cross-border data flows, including for firms in
the services economy, manufacturing, and agricultural industries, all
of which rely on data and information flows in their business models,
supply chains, and for international trade.
---------------------------------------------------------------------------
\6\ United States International Trade Commission. ``U.S.-Mexico-
Canada Trade Agreement: Likely Impact on the U.S. Economy and on
Specific industry Sectors,'' April 2019, https://www.usitc.gov/
publications/332/pub4889.pdf.
The following outlines the key elements of digital trade on how
cross-border data flows enable e-commerce, services, and manufacturing
exports, and can strengthen global value chains.
e-commerce and opportunities for small and medium-sized enterprises
There has been a lot of attention on the opportunities for SMEs of
doing their business online, and therefore reaching customers globally.
This was an early promise of the Internet in the 1990s and early 2000s
that was not fully realized. While a lot of companies did build
websites, this did not necessarily translate into sales in other
countries. There were several reasons for this outcome, including
payment systems that were costly and often could not support some of
the elements required for cross-border e-commerce, such as processing
returns. There was a lack of trust among consumers purchasing goods
from businesses in third countries with limited recourse if the goods
failed to arrive or were defective or damaged. It was also difficult to
deliver the product in a timely and cost-effective way due to costly
delivery services and inefficient Customs processes.
This has now changed. E-commerce presents a real opportunity for
SMEs to export and reach customers globally, allowing small businesses
to thrive and scale. A key development has been platforms such as eBay,
Amazon, Etsy, Mercado Libre in South America, and Lazada in Asia. These
platforms solve many of the previously mentioned problems. They provide
integrated payment solutions, trust mechanisms, cheap and effective
dispute settlement procedures, and links to express delivery services.
Figure 1 compares SMEs on eBay that export compared to their offline
peers. As can be seen, in the U.S. for example, 97 percent of small
businesses on eBay export.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The opportunities for SMEs to engage in digital trade has been
enabled by various trade commitments. For instance, the WTO Trade
Facilitation Agreement has helped reduce the costs of getting goods
through Customs in many markets globally. In trade agreements such as
the USMCA, commitments to raise the de minimus levels for Customs
duties support the economic viability of smaller value transactions,
often a staple of SME sales. Commitments on electronic signatures and
electronic authentication provide important legal frameworks that allow
for digital cross-border transactions. Commitments to not restrict data
flows and to encourage interoperability among digital payment systems
also enable the platforms that SMEs rely on to be global.
Another element that supports SMEs is access to digital
technologies such as cloud computing. In fact, the cloud is an
important enabler of a range of key inputs for all businesses. This
includes leading edge software and computing capacity that is secure
and available anywhere with an Internet connection. Cloud also supports
businesses that provide access to attorneys, marketers, design
professionals, and financial advisors on an at-need basis, supporting
flexible and cost-effective solutions for small businesses.
the u.s. leads the world in digital service trade
The discussion around digital services leads to the broader
observation that digital trade and cross-border data flows enable
digital services exports. Before turning to digital services, it is
worth noting the importance of services as a component of U.S. trade.
According to the U.S. Census Bureau, the U.S. services trade
surplus (September 2021-September 2022) was $236.6 billion. This is a
familiar and long-term trend--the U.S. has been exporting more services
than it imports for over 30 years. Services now comprise around 40
percent of total U.S. trade.
But services are an even more significant part of overall U.S.
trade than this share of services exports would suggest. This is
because around 30 percent of U.S. goods exports comprise value-added
services used in the production of goods. The net result is that over
60 percent of total U.S. exports comprise services.
The World Trade Organization (WTO) identifies four ways or modes
that services can be exported:
1. Mode 1: In a cross-border manner--where the service
supplier does not leave the U.S. and provides the service
online. This is a key vehicle for digital or online services
trade.
2. Mode 2: When someone comes to the U.S. to consume a service
such as tourists or students.
3. Mode 3: Where a U.S. business sets up a subsidiary overseas
to provide a service, such as when Citibank opens a branch in
Germany and provides financial services through that branch.
Though in this example, much of this communication between the
U.S. and the German branch will be online data will flow to
enable communication, transfers for banking, and which allow
the company to operate, such as information for human
resources.
4. Mode 4: Services are traded internationally when people
work in another country, a relatively small component of how
services are exported.
These examples underscore that a lot of services can be exported
and provided online. The following graph shows digitally deliverable
services as a share of commercial services trade. Commercial services
are key business inputs and comprise insurance and pension services,
financial services, charges for the use of intellectual property,
telecommunications, computer, and information services, and audiovisual
and related services. Many of these services would be familiar to the
average American consumer or small business owner. For example, PayPal
is a digital financial service that enables cross-border e-commerce
transactions on eBay, but also supports many e-commerce sites. Charges
to IP can range from software licensing fees paid by a business to the
commissions paid for artworks on Etsy. Small business owners may
subscribe to Apple's iCloud in order to streamline the storage and
security of data, as well as facilitate collaboration across platforms,
such as Microsoft Teams. Digital native companies such as Allbirds or
Bombas build their businesses almost exclusively using online
advertising and social media networks to reach potential customers
globally.
As can be seen in Figure 2, the U.S. is the world's largest
exporter of digitally deliverable services, over three times larger
than its nearest competitor Germany and 2.2 times larger than the UK.
Moreover, 51 percent of U.S. exports of commercial services are
digitally deliverable.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
digitally deliverable services are also important
for manufacturing competitiveness
As outlined, services comprise approximately 30 percent of U.S.
manufactured exports, and many of these are digital services. The table
below shows the percentages of domestically produced digital intensive
services embodied in manufactured exports.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As can be seen, digital services used in manufacturing comprise
professional, scientific, administrative, financial, ICT, and wholesale
retail trade. For example, steel production is increasingly digitally
intensive, relying on smart plants that knit together the manufacturing
processes digitally to increase efficiency, and use AI systems that
monitor and make adjustments to maximize performance. These types of
uses of data and digital services play out across manufacturing--in
automobiles, aircraft, medical products, and so on.
growing restrictions on digital trade
The digital trade opportunities for U.S. exporters increasingly
face a global environment with high restrictions on digital trade. The
OECD digital trade restrictiveness index shows relatively low levels of
restrictions in the U.S. and relatively high levels of restrictions in
Japan, India, and Indonesia--a set of countries participating in the
Indo-Pacific Economic Framework (IPEF) negotiations. These restrictions
also pale in comparison to China, which has one of the world's most
restrictive digital trade regimes. They range from various personal
data protection, cybersecurity, and national security laws that
prohibit or severely restrict cross-border transfers of information.
These laws often impose local data storage and processing requirements
on companies that collect ``important data,'' a broad and vaguely
defined term. Many countries prevent U.S. companies from directly
providing cloud computing services, including computer data processing
and storage services and software application services provided over
the Internet. Many digital trade restrictions are also hurdles to
electronic and Internet-enabled payment services such as slow licensing
processes and data localization requirements.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
digital trade and artificial intelligence
Digital trade also affects access to and the development of key
digital technologies such as AI. Indeed, U.S. National Security Advisor
Jake Sullivan has identified three families of technologies: (1)
computing-related technologies that includes AI; (2) clean energy
technologies; and (3) biotechnologies, all of which will affect U.S.
security.\7\ While the U.S. is a world leader in AI, many countries are
moving to regulate AI and expand AI R&D in ways important for ongoing
U.S. leadership in AI, and to which digital trade agreements can
respond. This includes AI regulation that can restrict AI development
and use. For instance, the European Union's AI Act that is moving
through the EU Parliament will regulate high risk AI. In addition,
Canada recently tabled its Artificial Intelligence and Data Act (AIDA).
Meanwhile, China, which holds a unique position in the international AI
landscape as both a chief collaborator with the U.S. on AI R&D and
competitor, has begun to roll out its own AI governance framework. This
includes regulations on the development and deployment of AI
algorithms, as well as increased control over Chinese technology firms
leading in AI development. China is also exporting its model for AI
regulation to other countries in the Indo-Pacific and globally.
---------------------------------------------------------------------------
\7\ Remarks by National Security Advisor Jake Sullivan at the
Special Competitive Studies Project Global Emerging Technologies
Summit, The White House, https://www.whitehouse.gov/briefing-room/
speeches-remarks/2022/09/16/remarks-by-national-security-advisor-jake-
sullivan-at-the-special-competitive-studies-project-global-emerging-
technologies-summit/.
Some countries are using FTAs and DEA to support AI specifically,
but the U.S. has yet to do so. Relevant ways that digital trade
commitments can support AI regulation and R&D include around access to
data, agreements on using technology standards developed in
multistakeholder standards setting bodies, agreement that AI regulation
should be risk-based, and support for collaboration on AI R&D among
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like-minded countries.
The following table was developed in the Forum on Cooperation in AI
(FCAI), which I co-lead with Cameron Kerry and Andrea Renda. FCAI is a
track 1.5 dialogue among seven governments, industry, and civil society
that aims to identify areas for international collaboration in AI.\8\
---------------------------------------------------------------------------
\8\ The Forum for Cooperation on Artificial Intelligence, https://
www.brookings.edu/project/the-forum-for-cooperation-on-artificial-
intelligence/.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
This table shows the ways that trade agreements can support AI.
While the USMCA and the U.S.-Japan Digital Trade Agreement include
relevant commitments, none of these are AI specific. In contrast, other
countries have taken the next step and began articulating AI specific
commitments. For example, the Australia-Singapore Digital Economy
Agreement, the EU-UK Trade and Cooperation Agreement, and the New
Zealand-UK Free Trade Agreement include AI-specific commitments. While
the U.S. does continue to focus on AI in other spaces, such as the TTC
and the Quad, digital trade commitments present an important
opportunity to influence AI regulatory developments, ensure markets are
open and competitive, and support AI R&D among allies and partner
countries.
conclusion
The U.S. has been perhaps most effective at developing a world
class digital economy that has created a range of new opportunities for
digital trade for both small and large businesses. However, to date the
U.S. has not sufficiently engaged nor shaped the rules and norms for
how digital trade should assess risks that impact access to new
markets. The U.S. should therefore work in cooperation with many
governments that are working hard to regulate and develop their own
digital economies and shape the terms of digital trade. And most
importantly, U.S. leadership in developing rules that govern digital
technologies such as AI is needed to ensure that AI is appropriately
regulated and developed consistently with U.S. values. The forthcoming
IPEF negotiations is the next opportunity for the U.S. to craft the
next generation of digital trade rules that can support a range of
economic opportunities that digital trade provides.
______
Prepared Statement of Patrick Woodall, Policy and
Research Director, AFL-CIO Technology Institute
Thank you, Chairman Carper and Ranking Member Cornyn, for the
opportunity to testify before your committee on ``Opportunities and
Challenges for Trade Policy in the Digital Economy.'' This testimony is
submitted on behalf of the AFL-CIO Technology Institute and the
American Federation of Labor and Congress of Industrial Organizations
and the 12.5 million workers represented by its 58 affiliated unions.
The digital transformation of the economy has generated real
societal gains--with significant scientific, communications, health-
care, commercial, and other advances--but also raised urgent challenges
for workers and society. This rapid technological change has emerged
largely without the knowledge, consent, or input of the people it most
affects--the workers and consumers whose lives are increasingly
governed, surveilled, and commodified by the digital revolution. The
U.S. Congress and U.S. regulators as well as governments worldwide are
only beginning to confront these challenges.
Digital commerce and cross-border digital trade affects people at
work and at home as technologies become built into workplaces and daily
life. Digital commerce and digital trade covers any services or
products that are delivered over the Internet. Much of this is
consumer-facing content or services like e-books and movies, email
services, smartphone apps, and software downloads. But it also concerns
the backbone of e-commerce (everything except the delivery of goods
purchased online), global cloud computing, and the big data services
that undergird an increasing portion of big business operations and
impact workers on and off the job.
The forces of global digital commerce are dramatically affecting
millions of workers whether they know it or not. These workers include
back-office and call-center workers that can lose their jobs from
digital offshoring to countries where workers are paid poverty wages
and face severe repression for organizing trade unions. They include
workers whose jobs are managed or controlled by automated software that
hires, rates, fires, schedules, and prods them to work faster to hit
ramped-up productivity targets. These technologies can shortchange
workers' earnings, expose workers to unsafe workplace conditions,
infringe on the right to form unions, and exacerbate employment
discrimination. Digital trade includes low-paid workers who toil for
platform companies that assign tasks, set pay rates, and impose
unaccountable discipline on ``gig'' workers who endure low earnings,
uncertain work schedules, and no benefits. And workers everywhere who
are monitored on and off the job by their employers.
Working families face the threats of digitization outside the
workplace as well. The large technology companies collect, share,
commodify, and sell tremendous amounts of personal data with little or
no oversight. Digital apps and social media platforms have eroded
personal privacy, undermined the mental health of adolescents, and
provided a megaphone to anti-democratic and hateful forces that have
corroded the social discourse.
The digital trade rules set the parameters of how governments can
address these global data flows and cross-border software that affects
workers, consumers, and society. The current digital trade rules,
included in the U.S.-Mexico-Canada Agreement and the U.S.-Japan digital
trade agreement, grant broad powers to the companies that control these
technologies and data and set stringent prohibitions against government
efforts to curb the demonstrable excesses of the digital economy.
There needs to be a new way forward for digital trade that
prioritizes workers and people and not just the technology industry. As
United States Trade Representative Katherine Tai stated in 2021,
digital trade must be ``grounded in how it affects our people and our
workers'' and provide space to ``prioritize flexible policies that can
adapt to changing circumstances'' of rapidly evolving forms of digital
commerce.\1\ This requires a more balanced approach that preserves the
right of governments to fully regulate the digital economy, while also
driving greater cooperation to address the very real threats to
privacy, democracy, and decent work.
---------------------------------------------------------------------------
\1\ Tai, Katherine. (Ambassador Tai). Ambassador, Office of the
U.S. Trade Representative. ``Remarks of Ambassador Katherine Tai on
Digital Trade at the Georgetown University Law Center Virtual
Conference.'' November 3, 2021 (https://ustr.gov/about-us/policy-
offices/press-office/speeches-and-remarks/2021/november/remarks-
ambassador-katherine-tai-digital-trade-georgetown-university-law-
center-virtual-conference).
A new worker-centered approach to digital trade must enshrine the
right to regulate these new technologies to protect workers and
consumers by enforcing current law and addressing emerging impacts on
the workplace and society. The absence of domestic measures governing
the digital economy heightens the importance that digital trade
---------------------------------------------------------------------------
agreements must preserve robust public policy space.
This testimony describes the significant problems with granting
broad powers to cross-border digital trade while narrowly constraining
government oversight in the context of trade approaches of other
sectors (Section I). It discusses the issues around digital trade
provisions on cross-border data flows and data localization (Section
II), source codes and algorithms (Section III), and other digital trade
issues that impact workers and society (Section III).
i. existing digital trade rigid constraints on domestic governance are
inappropriate because digital is different
The past 3 decades of globalization and international trade have
cost millions of American manufacturing and service-sector jobs and
contributed to the widening economic and racial inequality in the
United States. Prior trade agreements focused on the shipments of
physical goods and cross-border services but also addressed so-called
regulatory non-tariff barriers to trade that affected goods and
services. These trade provisions were adopted long after industrialized
countries had established regulatory structures designed to protect
workers, consumers, the environment, and communities from unsafe
workplaces, dangerous products, and pollution.
But the current provisions in digital trade are fundamentally
different. First, they grant broader powers to the technology companies
and employers that deploy digital technologies and ship data worldwide
than have previously been included in trade provisions. Second, the
digital trade language sets far narrower constraints on government
oversight of these cross-border data and technology transactions and
transmissions than in other sectors. The combination of these two
elements delivers a far more unbalanced combination of unilateral
corporate power for big tech with far more rigid constraints on
domestic oversight of the ubiquitous technologies and data that govern
workers' lives at home and on the job.
Critically, existing U.S. digital trade provisions are delivering
these broad cross-border corporate powers unfettered by government
regulation when the United States and many trading partners have almost
no regulatory structures to address the excesses of the technology
industry. The United States has only a patchwork of laws and rules that
govern big tech business models and expanding the current digital trade
model would effectively lock in an unregulated technology sector with
little or no meaningful oversight. The technology companies have pushed
for tough digital provisions to ``lock in their political power in
international rules that are difficult to change,'' according to a 2016
London School of Economics paper.\2\ Providing meaningful public policy
space that is not curtailed by digital trade provisions is especially
crucial for the new and novel concerns that are rapidly impacting
workers and society.
---------------------------------------------------------------------------
\2\ Azmeh, Shamel and Christopher Foster. London School of
Economics. ``The TPP and the digital trade agenda: Digital industrial
policy and Silicon Valley's influence on new trade agreements.''
Working Paper No. 16-175. January 2016 at 7 (https://
www.semanticscholar.org/paper/The-TPP-and-the-digital-trade-agenda%3A-
Digital-and-Azmeh-Foster/bead20d05f43cbbd
e351a4cc42f2112773ff1039).
Trade agreements infringe on domestic governance: Trade agreements
were designed to reduce barriers to cross-border shipments of goods,
largely import tariffs and quotas but increasingly domestic regulations
that are deemed so-called non-
tariff barriers. Over the past 3 decades, tariffs were substantially
reduced or eliminated through multilateral or bilateral trade
agreements. In the United States, this led to a dramatic surge in
imports that cost millions of U.S. manufacturing jobs and created far
more vulnerable supply chains.\3\ Unlike physical goods, there has been
a tariff moratorium on cross-border data flows, electronic
transmissions, and e-
commerce transactions since 1998.\4\
---------------------------------------------------------------------------
\3\ Scott, Robert E. and Zane Mokhiber. Economic Policy Institute.
``Growing China trade deficit cost 3.7 million American jobs between
2001 and 2018.'' January 30, 2020 (https://www.epi.org/publication/
growing-china-trade-deficits-costs-us-jobs/); Acemoglu, Daron et al.
National Bureau of Economic Research. ``Import Competition and the
Great U.S. Employment Sag of the 2000s.'' Working Paper No. 20395.
August 2014 (https://www.nber.org/papers/w20395).
\4\ Farge, Emma. ``WTO provisionally agrees to extend e-commerce
tariff moratorium--sources.'' Reuters. June 16, 2022 (https://
www.reuters.com/markets/commodities/wto-provisionally-agrees-extend-e-
commerce-tariff-moratorium-sources-2022-06-16/).
The trade agreements since the 1990s have also aimed to curb
domestic regulations that purportedly act as non-tariff barriers to
cross-border trade. The World Trade Organization and other bilateral
agreements constrained domestic governance over workplace safety, the
environment, food safety, regulatory standards and more. These
agreements imposed significant limitations on governments' ability to
implement policies that can affect trade and brought domestic
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governance under the disciplines of trade dispute settlement.
Trading partners can demand that domestic policies (or measures, in
trade language) be assessed to determine whether they pose illegitimate
trade barriers. These evaluations are significantly biased against the
ability of governments to establish domestic policies to protect
workers, consumers, communities, or the environment. Policies are
evaluated on a series of trade tests (the legitimacy and necessity of
the measure, the trade restrictiveness or whether a less protective
measure would facilitate more trade, and whether the measure poses
arbitrary or unjustified non-discrimination, including whether it is a
disguised trade restriction).
These policy caveats have proven difficult for countries to invoke
in practice, even for sectors with longstanding, well-established
regulatory regimes. At the World Trade Organization (WTO), fewer than 5
percent of domestic measures that were challenged as illegal trade
barriers were upheld in trade disputes as trade-legal under these
regulatory exceptions.\5\
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\5\ Rangel, Daniel. Public Citizen's Global Trade Watch. ``WTO
General Exceptions: Trade Law's Faulty Ivory Tower.'' January 2022
(https://www.citizen.org/article/wto-general-exceptions-trade-laws-
faulty-ivory-tower/).
The prior trade agreements' approach to domestic regulations over
goods and services were built upon an architecture of longstanding
domestic regulatory regimes in countries like the United States. Even
the severe bias against domestic regulations often contained language
that affirmatively granted the right to regulate and established
guidelines for evaluating domestic regulations to purportedly ensure
they were consistent with the international commitments.\6\ These
approaches at least recognized that global trade commitments interacted
with robust domestic regulatory policies.
---------------------------------------------------------------------------
\6\ For example, the WTO Sanitary and Phytosanitary Agreement Art.
2.1 gave members ``the right to take sanitary and phytosanitary
measures necessary for the protection of human, animal or plant life or
health, provided that such measures are not inconsistent with the
provisions of this Agreement.
Digital trade provisions include tough proscriptions against
domestic governance: The existing digital trade provisions grant more
powerful constraints on domestic policymaking in an environment where
there is little or no regulatory oversight of the technology sector.
The technology industry generally views all efforts to regulate digital
commerce and trade--including in areas like privacy protection and
national security--as illegitimate trade barriers motivated more by
parochial protectionism than by legitimate public policy concerns.\7\
---------------------------------------------------------------------------
\7\ Horowitz, Jeff. ``U.S. International Trade Commission's Digital
Trade Roundtable: Discussion Summary.'' Journal of International
Commerce and Economics. October 2015 at 3 (https://www.usitc.gov/
publications/332/journals/vol_iv_article4_digital_trade_summary.pdf).
Many USMCA and the U.S.-Japan digital provisions include
prohibitions against domestic regulations. For example, the agreements
dictate that ``no party shall prohibit or restrict'' cross-border data
flows,\8\ ``no party shall require'' local data storage,\9\ ``no party
shall require'' access to software source codes,\10\ and ``no party
shall adopt or maintain'' policies that hold platforms accountable for
the content posted on their networks.\11\
---------------------------------------------------------------------------
\8\ U.S.-Mexico-Canada Agreement (USMCA) Art. 19.11.1 (https://
ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/19-
Digital-Trade.pdf); U.S.-Japan Digital Trade Agreement (U.S.-Japan).
Art. 14.11.1 (https://ustr.gov/sites/default/files/files/agreements/
japan/
Agreement_between_the_United_States_and_Japan_concerning_Digital_Trade.p
df).
\9\ USMCA Art. 19.12; U.S.-Japan Art. 12.
\10\ USMCA Art. 19.16.1; U.S.-Japan Art. 17.1.
\11\ USMCA Art. 19.17.2; U.S.-Japan Art. 18.2.
This digital language begins with broad prohibitions against
domestic governance which sets a presumption that any domestic laws or
regulations to safeguard workers or consumers from the excesses of the
technology industry could be deemed illegal trade barriers. Some
provisions contain the same weak trade policy caveats (legitimate,
necessary, minimally trade restrictive, and disguised protectionism)
that make it harder to establish domestic policies to protect workers
and consumers from the downsides of digitization.\12\
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\12\ USMCA Art. 19.11.1 and U.S.-Japan Art. 11.1.
The significant constraints on domestic governance could make it
easier for trading partners to challenge any future regulatory efforts
to rein in the technology industry and protect workers and consumers.
This effectively would lock in the current absence of regulatory
oversight of big tech in the United States.\13\
---------------------------------------------------------------------------
\13\ Azmeh, Shamel, Christopher Foster, and Jaime Echavarri.
(Azmeh, Foster and Echavarri). ``The International Trade Regime and the
Quest for Free Digital Trade.'' International Studies Review. Vol. 22.
2020 at 684 (https://academic.oup.com/isr/article/22/3/671/5564378).
Constraint of governance over unregulated technology: The United
States has a patchwork of largely outdated statutes and regulations
that fail to protect people and workers from the potential abuses of
the digital world. Federal laws protecting personal data cover some
specific areas (like medical information, credit, or financial data),
but do not require companies to notify or compensate people if their
personal information is shared or sold or exposed to unauthorized
parties through cyber-crime or data breaches.\14\ Many of the laws are
outdated for today's digital world.\15\ For example, the rules that
absolve platforms and social media companies from responsibility from
users promoting hate speech and disinformation were implemented during
the age of dial-up modems.\16\
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\14\ Klosowski, Thorin. ``The state of consumer data and privacy
laws in the US (and why it matters).'' New York Times. September 6,
2021 (https://www.nytimes.com/wirecutter/blog/state-of-privacy-laws-in-
us/).
\15\ Kerry, Cameron F. Brookings Institute. ``Why protecting
privacy is a losing game today--and how to change the game.'' July 12,
2018 (https://www.brookings.edu/research/why-protecting-privacy-is-a-
losing-game-today-and-how-to-change-the-game/).
\16\ The Digital Millennium Copyright Act of 1998. 17 U.S.C.
Sec. 512.
There are effectively no regulations overseeing the impact of
algorithmic management, and workers have little protection or recourse
from digital surveillance on or even off the job.\17\ Automated
recruiting, hiring, and promotional decisions can have disproportionate
or disparate impact on people of color, women, people with
disabilities, older people, immigrants, or other protected classes, but
the application of civil rights statutes to new and emerging digital
technologies remains murky.\18\
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\17\ Bernhardt, Annette, Lisa Kresge, and Reese Suliman. (Bernhard,
Kresge and Suliman). University of California Berkeley Labor Center.
``Data and Algorithms at Work: The Case for Worker Technology Rights.''
November 2021 at 2 (https://laborcenter.berkeley.edu/data-algorithms-
at-work/); Ajunwa, Ifeoma, Kate Crawford, and Jason Schultz. (Ajunwa,
Crawford, and Schultz). ``Limitless Worker Surveillance.'' California
Law Review. Vol. 105. 2017 at 747 to 749 (https://
californialawreview.org/print/3-limitless-worker-surveillance/).
\18\ Yang, Jenny R. Urban Institute. (Yang). Statement before the
Subcommittee on Civil Rights and Human Services. Committee on Education
and Labor. U.S. House of Representatives. ``The Future of Work:
Protecting Workers' Civil Rights in the Digital Age.'' February 5, 2020
at 8 to 11 (https://edworkforce.house.gov/download/jenny-r-yang/
default.aspx).
The public and the Congress recognize that this big tech Wild West
is not working for people or society. An increasing majority of the
public favors more regulation of technology and technology companies,
especially related to protecting privacy and curbing monopolistic
market power.\19\ The House Energy and Commerce Committee passed
digital privacy legislation nearly unanimously in July 2022 and
released a bipartisan statement flagging the legislation's goal to
``rein in big tech's power and establish clear, robust protections for
people.''\20\ Bipartisan legislation to address big tech's monopolistic
and anticompetitive power has passed the Senate and House Judiciary
committees but has faced a withering and misleading advertising
campaign to derail the legislation.\21\ The existing digital trade
language would create a very high barrier to implementing and enforcing
these laudable congressional efforts.
---------------------------------------------------------------------------
\19\ Vogels, Emily A. Pew Research Center. ``56% of Americans
support more regulation of major technology companies.'' July 20, 2021
(https://www.pewresearch.org/fact-tank/2021/07/20/56-of-americans-
support-more-regulation-of-major-technology-companies/); Brenan, Megan.
Gallup. ``Views of Big Tech Worsen; Public Wants More Regulation.''
February 18, 2021 (https://news.gallup.com/poll/329666/views-big-tech-
worsen-public-wants-regulation.aspx).
\20\ U.S. House of Representatives. Energy and Commerce Committee.
[Press release]. ``Bipartisan E&C Leaders Hail Committee Passage of the
American Data Privacy and Protection Act.'' July 20, 2022 (https://
republicans-energycommerce.house.gov/news/press-release/bipartisan-ec-
leaders-hail-committee-passage-of-the-american-data-privacy-and-
protection-act).
\21\ Feiner, Lauren. ``Senate committee votes to advance major tech
antitrust bill.'' CNBC. January 20, 2022 (https://www.cnbc.com/2022/01/
20/senate-committee-votes-to-advance-major-tech-antitrust-bill.html);
McKinnon, John D. ``Big Tech Has Spent $36 million on Ads to Torpedo
Antitrust Bill.'' Wall Street Journal. June 9, 2022; Wheeler, Tom.
Brookings Institute. ``History repeats itself with Big Tech's
misleading advertising.'' June 15, 2022 (https://www.
brookings.edu/blog/techtank/2022/06/15/history-repeats-itself-with-big-
techs-misleading-advertising/).
The existing digital trade provisions constraints on domestic
governance harm workers, consumers, and society. The following sections
describe how the combination of broad corporate powers for big tech
companies and stringent regulatory restrictions could lead to increased
offshoring of U.S. jobs, make it harder to enforce current labor,
employment, and civil rights laws against artificial intelligence
algorithmic management and automated decision-making, and prevent
governments from adopting safeguards to address emerging technological
issues, such as workplace surveillance.
ii. workers harmed by free flow of data and data localization digital
trade provisions that accelerate job offshoring and prevent protecting
critical data and sectors
The current digital trade model grants broad powers to technology
and other companies to control, transmit, process, and store data
worldwide, while also shielding their digital systems from regulatory
scrutiny. These provisions prohibit any restriction on cross-border
data flows--even for sensitive forms of personal information--as well
as an absolute prohibition on ``data localization'' policies. Together,
these two provisions grant companies a near unrestricted right to
control data and ship it worldwide. The globalization of data has led
to the outsourcing and offshoring of U.S. jobs, the increasing
privatization of government datasets that reduces public access and
raises costs, and the collection of vast troves of personal data
compromises the privacy of workers on the job and people at home.
Tech industry demands and existing digital provisions deliver
unfettered free flow of data: The technology industry and other big
businesses have pressed for digital trade provisions that largely
prohibit any impediments to cross-border data flows. The U.S.
technology industry has pressed hard for free flow of data because the
biggest cloud computing firms are based in the United States.\22\ The
U.S. Chamber of Commerce listed unfettered cross-border data flows as
its top digital trade priority.\23\ The industry promotes the
unrestricted right for companies to transfer data across borders as a
tool to counter authoritarian Internet censorship,\24\ but that does
not mean that all data--including personal, sensitive, or secure--
should have no restrictions or requirements when crossing borders.\25\
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\22\ Fefer, Rachel F., Shayerah I. Akhtar, and Michael D.
Sutherland. (Fefer, Akhtar and Sutherland). Congressional Research
Service. ``Digital Trade and U.S. Trade Policy.'' CRS Report R44565.
December 9, 2021 at 17 (https://crsreports.congress.gov/product/pdf/R/
R44565/18).
\23\ U.S. Chamber of Commerce. ``The Digital Trade Revolution: How
U.S. Workers and Companies Can Benefit from a Digital Trade
Agreement.'' February 2022 at 18 (https://www.
uschamber.com/assets/documents/Final-The-Digital-Trade-Revolution-
February-2022.pdf).
\24\ Cory, Nigel, Robert D. Atkinson, and Daniel Castro.
Information Technology and Innovation Foundation. ``Principles and
Policies for `Data Free Flow with Trust.' '' May 27, 2019 (https://
itif.org/publications/2019/05/27/principles-and-policies-data-free-
flow-trust/).
\25\ McCann, Duncan. (McCann). New Economics Foundation. For the
International Trade Union Confederation. ``Free Trade Agreements,
Digital Chapters and the impact on Labor.'' 2019 at 16 (https://
www.ituc-csi.org/IMG/pdf/
digital_chapters_and_the_impact_on_labour_en.pdf).
These industry demands are enshrined in existing digital trade
language that provide a nearly unrestricted, unconditional right for
cross-border data collection, transmission, and use. The USMCA and U.S.
Japan digital agreement both contain nearly absolutist language on data
flows: ``No Party shall prohibit or restrict the cross-border transfer
of information'' and it specifically includes ``personal information''
in this protected right to ship data worldwide.\26\ This prioritizes
corporate data ownership and control over the privacy rights of workers
and consumers.
---------------------------------------------------------------------------
\26\ USMCA Art. 19.11.1 and U.S.-Japan Art. 11.1.
The USMCA and the U.S.-Japan cross-border data flow provisions
contain only narrow caveats for permissible government measures that
must be necessary, legitimate, not disguised restriction to trade, or
more trade restrictive than necessary.\27\ These policy exceptions are
borrowed from the WTO, where dispute panels have narrowly interpreted
these caveats and constrained governments' right to regulate. The
current digital provisions would make it very difficult for governments
to maintain or adopt rigorous measures to address the negative impacts
of unrestricted data flows on workers or consumers.
---------------------------------------------------------------------------
\27\ USMCA Art. 19.11.2 and U.S.-Japan Art. 11.2.
Prohibitions on data localization can harm workers, consumers, and
the economy: The USMCA and U.S.-Japan digital provisions also contain
an absolute prohibition on ``data localization'' policies. Data
localization measures require that data generated within a country must
meet certain requirements including domestic data storage.\28\ An
increasing number of governments are requiring that some kinds of data
be stored on domestically to protect digital privacy or secure critical
infrastructure.
---------------------------------------------------------------------------
\28\ Azmeh, Foster and Echavarri. 2020 at 677 (https://
academic.oup.com/isr/article/22/3/671/5564378).
The USMCA and U.S.-Japan data localization provisions broadly
prohibit countries from requiring companies ``to use or locate
computing facilities in that party's territory as a condition for
conducting business.''\29\ Unlike the prohibition on restrictions to
cross-border data flows, neither digital agreement contains a
``legitimate public policy'' exception, although both agreements
exclude financial services from the data localization provisions.\30\
---------------------------------------------------------------------------
\29\ USMCA Art. 19.12; U.S.-Japan Art. 12.1.
\30\ USMCA Art. 19.1; U.S.-Japan Art. 12.2.
While some data localization policies have been established to
foster domestic capacity or protect domestic industries, many
``localization policies may be used to achieve legitimate public policy
objective, including national security and personal data protection,''
according to the Congressional Research Service.\31\ Localization
requirements can also prevent companies from moving data to countries
with the weakest privacy or financial protections in a digital race to
the bottom that could shield information from regulatory oversight.\32\
---------------------------------------------------------------------------
\31\ Fefer, Akhtar and Sutherland. 2021 at 16 (https://
crsreports.congress.gov/product/pdf/R/R44565/18).
\32\ Kelsey, Jane. Public Services International. ``Digital trade
rules and Big Tech: Surrendering the public good to private power.''
February 2020 at 14 to 15 (https://publicservices.
international/resources/publications/digital-trade-rules-and-big-tech-
surrendering-public-good-to-private-power?id=10825&lang=en).
The combination of the unfettered right to ship data across borders
and prohibitions against maintaining domestic data storage to secure
some categories of sensitive data or some critical economic sectors can
---------------------------------------------------------------------------
harm consumers, workers, and the economy. For example:
Digital trade provisions compromise personal privacy: In our
hyper-connected online world, consumers and workers' personal
data is increasingly monitored, collected, shared, analyzed and
sold by companies without their knowledge, consent, or
oversight. Privacy issues are inherently tangled with digital
trade issues by companies that collect and ship personal data
across borders.\33\ Tech companies view privacy measures that
keep critical data either within national borders or subject to
stronger oversight requirements as ``impediments to the
presence and productivity of their companies in these countries
and to international trade,'' according to companies at a U.S.
International Trade Commission forum.\34\ The Office of the
U.S. Trade Representative (USTR) has identified consumer
privacy measures as potential or likely trade barriers and
unreasonable impediments to the cross-border flow of data,
including laws in Canada, EU, India, Israel, Korea, and
Switzerland.\35\
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\33\ Azmeh, Foster and Echavarri. 2020 at 682 (https://
academic.oup.com/isr/article/22/3/671/5564378).
\34\ Horowitz, Jeff. ``U.S. International Trade Commission's
Digital Trade Roundtable: Discussion Summary.'' Journal of
International Commerce and Economics. October, 2015 at 4 (https://
www.usitc.gov/publications/332/journals/
vol_iv_article4_digital_trade_summary.pdf).
\35\ Office of the U.S. Trade Representative (USTR). ``2021
National Trade Estimate Report on Foreign Trade Barriers.'' March 2021
at 89, 209, 266, 289, 332 (https://ustr.gov/sites/default/files/files/
reports/2021/2021NTE.pdf).
The USMCA and U.S.-Japan digital provisions explicitly state
that even the cross-border transmission of ``personal information''
cannot be prohibited or restricted.\36\ The agreements purportedly
permit policies to safeguard personal information but effectively
encourage voluntary, corporate self-
regulation as a substitute for government privacy regulations.\37\ But
voluntary, self-regulation is what consumers face today and it is not
working. The big tech companies that own the personal data already have
``privacy'' policies but have nonetheless exposed users to cyber-risks
while monetizing the data they collect.\38\ The digital trade personal
information provisions also require regulatory approaches be
``necessary and proportionate to the risks,''\39\ but do not recognize
that consumers, not the companies, bear all the digital privacy risks.
This prevents the enactment of any meaningful privacy protection,
because it can be difficult to put a financial value on privacy and
security from cyber-breaches.\40\
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\36\ USMCA Art. 19.11.1; U.S.-Japan Art. 11.2.
\37\ USMCA Art. 19.8.2 footnote 4; U.S.-Japan Art. 15.1 footnote
12.
\38\ Warzel, Charlie and Stuart A. Thompson. ``Tech Companies Say
They Care.'' New York Times. April 10, 2019 (https://www.nytimes.com/
interactive/2019/04/10/opinion/tech-companies-privacy.html).
\39\ USMCA Art. 19.8.3; U.S.-Japan Art. 15.4.
\40\ Estevadeordal, Anton, Marisol Rodriguez Chatruc, and Christian
Volpe Martincus. Inter-American Development Bank. ``New Technologies
and Trade: New Determinants, Modalities, and Varieties.'' Discussion
Paper No. IDB-DP-00746. February 2020 at 25 (https://
publications.iadb.org/publications/english/document/
New_Technologies_and_Trade_New_Determi
nants_Modalities_and_Varieties_en.pdf).
Current digital provisions contain no exceptions for
critical infrastructure: The USMCA and U.S.-Japan data
provisions do not exclude critical infrastructure.\41\ Failing
to exempt critical infrastructure from the cross-border data
and data localization provisions could make it harder to
protect essential economic sectors from cyberattacks. In 2021,
a cyberattack against one of the biggest pipeline systems on
the east coast led to gas lines and threatened to idle
downstream industry like chemical companies and refineries.\42\
Another 2021 hack of a Florida water system remotely elevated
the levels of a dangerous chemical in the water; the operator
fortunately noticed the change and quickly prevented the hack
from tainting the water supply.\43\ The Government
Accountability Office has highlighted the environmental and
economic risks of the cyber vulnerability of 1,600 U.S.
offshore oil and gas rigs.\44\ Some companies and countries are
moving towards domestic data hosting for critical
infrastructure to increase security and accountability for
systems like electricity and water delivery.\45\
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\41\ The Comprehensive and Progressive Agreement for Trans-Pacific
Partnership, to which the United States is not a party, did exempt
critical infrastructure from the agreement's software secrecy
provisions. CPTTP Art. 14.17.2 (https://www.dfat.gov.au/sites/default/
files/14-electronic-commerce.pdf).
\42\ Sanger, David E. and Nicole Perlroth. ``Pipeline Attack Yields
Urgent Lessons About U.S. Cybersecurity.'' New York Times. June 8, 2021
(https://www.nytimes.com/2021/05/14/us/politics/pipeline-hack.html).
\43\ Margolin, Josh and Ivan Pereira. ``Outdated computer system
exploited in Florida water treatment hack.'' ABC News. February 11,
2021 (https://abcnews.go.com/US/outdated-computer-system-exploited-
florida-water-treatment-plant/story?id=75805550).
\44\ Government Accountability Office. ``Offshore Oil and Gas:
Strategy Urgently Needed to Address Cybersecurity Risks to
Infrastructure.'' GAO-23-105789. October 26, 2022 (https://www.gao.gov/
products/gao-23-105789).
\45\ ``Mitigating risks through sovereign data services.'' CRN
News. November 21, 2022 (https://www.crn.com.au/feature/mitigating-
risks-through-sovereign-data-services-588052).
Digital trade data provisions encourage low-road digital
offshoring: Big tech companies and other employers have
demanded unfettered cross-border data flows, in part, to
facilitate the offshoring of digitally enabled back-office,
call-center, data processing, telemedicine, and other jobs.
According to a 2021 report commissioned by Facebook, ``If
transferring personal data were not permitted, offshoring
business services to popular outsourcing destinations would no
longer be possible.''\46\ This kind of digital outsourcing has
eliminated U.S. jobs and cost workers their benefits.\47\ One
call center outsourcing company promotes a list of nearly 30
major corporations--including financial and telecommunications
firms--that outsource their call centers.\48\ AT&T shuttered 44
call centers costing 16,000 unionized Communications Workers of
America (CWA) jobs from 2011 to 2018, despite record
profits.\49\ A 2018 Labor Department investigation found that
Wells Fargo slashed thousands of U.S. customer service and
technology jobs while hiring overseas workers to replace the
exact same functions.\50\
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\46\ Kepes, Roze, Josh White, and Aaron Yeater. Analysis Group for
Facebook. ``The importance of cross-border data flows.'' June 2021 at 4
(https://about.fb.com/wp-content/uploads/2021/06/The-Importance-of-
Cross-Border-Data-Flows.pdf).
\47\ Chakraborty, Kalyan and William Remington. ``Impact of
Offshore Outsourcing of IT Services on the U.S. Economy.'' Southwestern
Economic Review. 2004 (https://swer.wtamu.edu/sites/default/files/Data/
73-94-69-258-1-PB.pdf).
\48\ Magellan Solutions. ``List of Companies That Outsource Call
Centers.'' Accessed March 2022 (https://www.magellan-solutions.com/
blog/list-of-companies-that-outsource-call-centers/).
\49\ Sainato, Michael. `` `They're liquidating us': AT&T continues
layoffs and outsourcing despite profits.'' The Guardian. August 18,
2018 (https://www.theguardian.com/us-news/2018/aug/28/att-earns-record-
profits-layoffs-outsourcing-continue); Communication Workers of America
(CWA). ``AT&T 2018 Jobs Report.'' April 25, 2018 (https://www.cwa-
union.org/sites/default/files/att-jobs-report-2018.pdf).
\50\ Moise, Imani. ``Wells Fargo moves jobs abroad after U.S.
layoffs, government says.'' Reuters. December 20, 2018 (https://
www.reuters.com/article/us-wells-fargo-outsourcing/wells-fargo-moves-
jobs-abroad-after-u-s-layoffs-government-says-idUSKCN1OJ2V5).
Many of these jobs are going to countries where workers and union
activists face severe repression and toil for low wages with few labor
protections. For example, many of the CWA call center jobs have been
digitally offshored to countries like Mexico and the Philippines.\51\
---------------------------------------------------------------------------
\51\ CWA. ``Offshoring Security.'' October 2013 (https://
www.scribd.com/document/183863856/OFFSHORING-SECURITY-How-Overseas-
Call-Centers-Threaten-U-S-Jobs-Consumer-Privacy-and-Data-
Security#fullscreen=1); CWA. [Press release]. ``CWA Uncovers Massive
Verizon Offshoring Operation in Philippines.'' May 13, 2016 (https://
cwa-union.org/news/releases/cwa-uncovers-massive-verizon-offshoring-
operation-in-philippines).
The digital trade data provisions also help maintain a global
underclass of low-paid gig workers who transcribe, enter data, label
images, and manually tag information that powers the artificial
intelligence systems of the biggest tech companies.\52\ Many of these
millions of ghost workers are in Indo-Pacific Economic Framework
countries India and the Philippines where they receive low pay and
precarious labor conditions.\53\ Companies in the United States are the
biggest employers of digital gig workers in the developing world
according to data compiled by the University of Oxford.\54\
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\52\ Friedland, Julian, David Balkin, and Ramiro Montealegre. ``A
Ghost Workers' Bill of Rights: How to Establish a Fair and Safe Gig
Work Platform.'' California Management Review. January 7, 2020 (https:/
/cmr.berkeley.edu/2020/01/ghost-workers/).
\53\ Royer, Alexandrine. Brookings Institute. ``The urgent need for
regulating global ghost work.'' February 9, 2021 (https://
www.brookings.edu/techstream/the-urgent-need-for-regulating-global-
ghost-work/).
\54\ Kassi, Otto and Vili Lehdonvirta. Oxford Internet Institute.
University of Oxford. ``Online Labour Index 2020 by Country.'' 2020
(http://onlinelabourobservatory.org/oli-demand/).
A worker-centered digital trade agenda would establish critical
safeguards for workers, consumers, and the economy: Future digital
trade agreements must provide robust public policy space to protect
workers, consumers, and the economy. The current digital provisions
excessively constrain domestic policy and do not provide necessary
flexibility to address emerging and novel technological issues. At a
minimum, the cross-border data and data localization provisions of
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future digital trade agreements or compacts should:
Authorize and encourage governments to enact policies to
safeguard individuals' personal data: Governments should be
able to adopt restrictions on cross-border data flows to
protect the privacy and security of their citizens' personal
data. Digital trade policy should encourage rather than deter
government efforts to safeguard individuals' personal data
inside and outside the workplace.
Authorize governments to enact data localization policies
with regard to certain categories of sensitive data: While open
data flows are essential to the modern global economy, not all
data is the same. Governments should have the ability to
establish stronger requirements for data related to certain
sensitive sectors or personal information, including critical
infrastructure (energy, water systems, transportation),
national security, law enforcement, health care, finance, and
other areas where a data breach or disruption risks undermining
economic or national security. Safeguarding critical,
vulnerable, and personal data not only protects the security of
people and the economy, but it also helps keep good jobs here
in the United States.
iii. workers harmed by source code and algorithm digital trade provisions
that set high barriers to address corrosive impacts of boss-ware
Current U.S. digital trade agreements include broad prohibitions on
government access to and oversight of the source codes and algorithms
behind the automated decision-making and artificial intelligence
systems that are increasingly impacting the workplace and society. The
provisions purport to be focused on preventing the forced transfer of
software secrets as a condition for market access, but the strong,
binding source code and algorithm protections pose significant
challenges for effective government oversight.\55\
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\55\ Slok-Wodkowska, Magdalena and Joanna Mazur. (Slok-Wodkowska
and Mazur). ``Secrecy by Default: How Regional Trade Agreements Reshape
Protection of Source Code.'' Journal of International Economic Law.
Vol. 25. 2022 at 107 (https://academic.oup.com/jiel/article/25/1/91/
6534278).
Source code is the description of the steps or actions a computer
program takes to perform its functions. Software source code is often
``black box'' technology that is not transparent to software consumers,
meaning even the companies that buy and deploy these programs do not
know how they work. These source codes and algorithms are also the
recipe for how companies extract and commodify personal data and
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increasingly govern the workplace and oversee workers.
There are many legitimate policy reasons for government authorities
to examine source codes and algorithms. For example, financial
regulators might want to access source codes and trading algorithms to
prevent high-frequency securities trading from engaging in market
manipulation.\56\ Environmental regulators should be able to determine
if pollution-evasion software facilitates increased emissions, as was
the case with the Volkswagen diesel emissions fraud.\57\
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\56\ Busch, Danny. ``MiFID II: Regulating high frequency trading,
other forms of algorithmic trading and direct market access.'' Law and
Financial Markets Review. Vol. 10, Iss. 2. 2016 (https://
www.tandfonline.com/doi/full/10.1080/17521440.2016.1200333).
\57\ Dwyer, Jim. ``Volkswagen's Diesel Fraud Makes Critic of Secret
Code a Prophet.'' New York Times. September 22, 2015 (https://
www.nytimes.com/2015/09/23/nyregion/volkswagens-diesel-fraud-makes-
critic-of-secret-code-a-prophet.html).
Ambassador Katherine Tai stated that digital trade provisions need
to provide policy space to address ``artificial intelligence in a way
that safeguards economic security for workers.''\58\ But the current
digital trade provisions create substantial barriers to governments
accessing source code and algorithms to protect workers and enforce
labor laws, protect privacy, enforce civil rights laws and prohibit
discrimination, safeguard consumers, police anticompetitive conduct,
and to pursue other legitimate public policy goals.
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\58\ Ambassador Tai. 2021 (https://ustr.gov/about-us/policy-
offices/press-office/speeches-and-remarks/2021/november/remarks-
ambassador-katherine-tai-digital-trade-georgetown-university-law-
center-virtual-conference).
Digital trade source code and algorithm secrecy provisions
constrain legitimate government oversight: The USMCA and U.S.-Japan
source code provisions impose broad prohibitions on necessary
government oversight and lock in the current weak regulatory oversight
of algorithmic management in the workplace leaving workers and people
unprotected from the excesses of digitization. These agreements
prohibit countries from requiring ``the transfer of, or access to, a
source code of software [. . .] or an algorithm expressed in that
source code'' as a condition of distributing or selling that
product.\59\ The USMCA definition of algorithm (a ``defined sequence of
steps taken to solve a problem or obtain a result''\60\) might preclude
governments from accessing even a description of what data the source
code uses, how the data is evaluated, and how the source code
operates.\61\ The source code provisions shield technology companies
and employers from government efforts to monitor and access source
codes and algorithms even to achieve needed policy goals to protect the
public.
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\59\ USMCA Art. 19.16.1; U.S.-Japan Art. 17.
\60\ USMCA Art. 19.1; U.S.-Japan Art. 1.
\61\ Slok-Wodkowska and Mazur. 2022 at 98 (https://
academic.oup.com/jiel/article/25/1/91/6534278).
The existing digital agreements provide a narrow exception that
allows government oversight ``for a specific investigation, inspection,
examination, enforcement action, or judicial proceeding.''\62\ The
case-by-case exemption for specific enforcement actions precludes
broader, industry-wide evaluations of big tech to curb the harmful
impact of algorithms, artificial intelligence, and machine learning on
workers and people.
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\62\ USMCA Art. 19.16.2; U.S.-Japan Art. 17.
The specific investigation clause also leaves it unclear how
governments could initiate an investigation into, for example,
employment discrimination and artificial
intelligence-driven management software, without first having the broad
authority to conduct an initial review of source codes to understand
how they function and what their impacts are in the workplace.\63\
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\63\ McCann. 2019 at 15 (https://www.ituc-csi.org/IMG/pdf/
digital_chapters_and_the_impact_
on_labour_en.pdf).
Digital source code and algorithm provisions could prevent the
protection of workers from the excesses of algorithmic management:
Employers are increasingly using artificial intelligence and other
software automation applications to screen potential workers, assign
tasks, press workers to be more productive, set shift schedules and pay
rates, and discipline and terminate workers.\64\ Women, people of
color, and immigrants are more likely to be employed in lower-wage
workplaces where they can bear the brunt of algorithmic management and
its potentially embedded racial and social biases.\65\ These trends
increased during the pandemic shift to remote and hybrid work.\66\
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\64\ AI NOW Institute. ``2019 Report.'' December 2019 at 10
(https://ainowinstitute.org/AI_Now_2019_Report.pdf).
\65\ Bernhardt, Kresge and Suliman. 2021 at 2 (https://
laborcenter.berkeley.edu/data-algorithms-at-work/).
\66\ Mearian, Lucas. ``The rise of digital bosses: They can hire
you--and fire you.'' Computerworld. January 6, 2022 (https://
www.computerworld.com/article/3646234/the-rise-of-ai-based-managers-
they-now-play-a-big-role-in-hiring-training-and-firing.html); Finnegan,
Matthew. ``EU `gig worker' rules look to rein in algorithmic
management.'' Computerworld. December 15, 2021 (https://
www.computerworld.com/article/3644462/eu-gig-worker-rules-look-to-rein-
in-algorithmic-management.html).
These automated workplace systems harm workers. A 2021 review of 45
studies on algorithmic management found that more than 90 percent of
them highlighted the negative impacts on workers, from de-skilling and
task variety, lower worker autonomy and increased workplace control,
and increased work intensity and job insecurity.\67\ Algorithmic
management software are ``black box'' unaccountable systems that hide
what data is relied upon and how the data is used to make decisions.
The lack of transparency can obscure the harms which are likely to
proliferate as these technologies become more widely implemented.
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\67\ Parent-Rocheleau, Xavier and Sharon K. Parker. ``Algorithms as
work designers: How algorithmic management influences the design of
jobs.'' Human Resource Management Review. May 2021 (https://
www.sciencedirect.com/science/article/abs/pii/S1053482221000176?via%3Di
hub).
The digital trade source code and algorithm provisions could make
it harder for governments to protect workers from unfair and illegal
labor practices, to enforce current law, or to address emerging worker
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protection issues, including:
Enforcing workplace safety laws against productivity-
prodding algorithmic management that can increase injury rates:
Workplace surveillance and algorithmic management can impose
productivity targets that can lead to workplace injuries.
Amazon warehouse workers are monitored by artificial
intelligence-enhanced security cameras and handheld package
scanners that track worker movements and evaluate work speed
and can even terminate workers based on data collected on
workplace productivity metrics.\68\ Workers believe that
maintaining a high package pick rate is essential to getting
permanent or better positions, creating strong incentives to
increase work intensity.\69\ Workers have been disciplined and
even fired for failing to hit pick-rate productivity
targets.\70\ Amazon's warehouse worker productivity programs
have ratcheted up workloads and work speed and are associated
with the company's injury rate that is three times the national
average, with serious injury rates five times the national
average.\71\ The Occupational Safety and Health Administration
should be able to assess the extent that algorithmic
productivity software is increasing workplace injuries.
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\68\ Constantz, Jo. (Constanz). `` `They Were Spying on Us':
Amazon, Walmart, Use Surveillance Technology to Bust Unions.''
Newsweek. December 13, 2021 (https://www.newsweek.com/they-were-spying-
us-amazon-walmart-use-surveillance-technology-bust-unions-1658603);
Wood, Alex J. (Wood). European Commission. Joint Research Center.
``Algorithmic Management: Consequences for Work Organisation and
Working Conditions.'' JCR Working Paper No. 124874. 2021 at 8 to 9
(https://joint-research-centre.ec.europa.eu/system/files/2021-05/
jrc124874.pdf).
\69\ Wood. 2021 at 7 (https://joint-research-centre.ec.europa.eu/
system/files/2021-05/jrc1248
74.pdf).
\70\ Dastin, Jeffrey. ``Amazon issued 13,000 disciplinary notices
at a single U.S. warehouse.'' Reuters. July 12, 2022 (https://
www.reuters.com/technology/amazon-issued-13000-disciplinary-notices-
single-us-warehouse-2022-07-12/).
\71\ Athena Coalition. ``Packaging Pain: Workplace Injuries in
Amazon's Empire.'' January 10, 2020 (https://www.nelp.org/publication/
packaging-pain-workplace-injuries-amazons-empire/).
Algorithmic surveillance of workers personal social media
presence stifles right to form unions: Some employers are
snooping on workers' social media accounts to find unfavorable
opinions of the company as well as determine worker discontent
and union sympathies. About half of large employers use
software to analyze the text of employee social media posts,
according to a 2018 survey.\72\ A 2022 memo from the National
Labor Relations Board general counsel stated that ``omnipresent
surveillance and other algorithmic-management tools'' can
``significantly impair'' the right to form or join unions.\73\
There are many examples of anti-union worker surveillance.
Amazon's Whole Foods has used heat maps and predictive
algorithms to track locations that were estimated to be high-
risk for union activity.\74\ McDonalds has operated an
intelligence team that monitored the Fight for $15 organizers,
which McDonalds employees were active in the campaign, and
which workers and locations were interested in forming
unions.\75\ The meal kit company HelloFresh used software to
mine social media posts on Twitter and Instagram looking for
content about unionization efforts and identify whether the
posts belonged to an employee.\76\ The Labor Department should
be able to determine whether this kind of algorithmic
surveillance violates the right to form or join unions.
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\72\ Gartner. ``The Future of Employee Monitoring.'' May 3, 2019
(https://www.gartner.com/smarterwithgartner/the-future-of-employee-
monitoring).
\73\ Abruzzo, Jennifer A. General Counsel. National Labor Relations
Board. Office of the General Counsel. ``Electronic Monitoring and
Algorithmic Management of Employees Interfering with the Exercise of
Section 7 Rights.'' Memorandum No. GC-23-02. October 31, 2022 at 1
(https://apps.nlrb.gov/link/document.aspx/09031d45838de7e0).
\74\ Constantz. December 13, 2021 (https://www.newsweek.com/they-
were-spying-us-amazon-walmart-use-surveillance-technology-bust-unions-
1658603).
\75\ Franceshi-Bicchierai, Lorenzo and Lauren Kaori Gurley.
``McDonald's Secretive Intel Team Spies on `Fight for $15' Workers,
Internal Documents Show.'' Vice. February 24, 2021 (https://
www.vice.com/en/article/pkdkz9/mcdonalds-secretive-intel-team-spies-on-
fight-for-15-workers).
\76\ Kaori Gurley, Lauren. ``Internal Slacks Show HelloFresh Is
Controlling Talk of Unionization.'' Vice. November 19, 2021 (https://
www.vice.com/en/article/n7nb9w/internal-slacks-show-hellofresh-is-
controlling-talk-of-unionization).
Automated scheduling software can violate labor law and
shortchange workers: Retail companies use algorithms to
automate just-in-time shift schedules to minimize costs that
often leave workers without stable work schedules that reduce
economic stability and disrupt family life.\77\ Half of retail
workers face uncertain scheduling that compounds the economic
precarity from low wages.\78\ Retail workers under algorithmic
scheduling can receive shorter hours, on-call shifts that never
materialize, or shift assignments without prior notice.\79\ The
adoption of one algorithmic scheduling software can convert
full-time workers into part-time workers, ending their health-
care coverage.\80\ Algorithmic scheduling software can also
encourage managers attempting to meet productivity targets to
press workers to work off the clock, skip breaks, or
misattribute paid sick leave that can amount to wage theft.\81\
Government authorities need to be able to access source code to
assess how algorithmic scheduling can negatively affect workers
and potentially violate wage and hour law.
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\77\ Finnegan, Matthew. ``EU `gig worker' rules look to rein in
algorithmic management.'' Computerworld. December 15, 2021 (https://
www.computerworld.com/article/3644462/eu-gig-worker-rules-look-to-rein-
in-algorithmic-management.html); Wykstra, Stephani. ``The movement to
make workers' schedules more humane.'' Vox. November 5, 2019 (https://
www.vox.com/future-perfect/2019/10/15/20910297/fair-workweek-laws-
unpredictable-scheduling-retail-restaurants).
\78\ Schneider, Daniel and Kristen Harknett. University of
California Berkeley and Aspen Institute. ``Income Volatility in the
Service Sector: Contours, Causes, and Consequences.'' July 2017 at 2
(http://www.aspenepic.org/wp-content/uploads/2017/07/
ASPEN_RESEARCH_INCOME_
VOLATILITY_PRINT.pdf).
\79\ Kaplap, Esther. (Kaplap). ``The Spy Who Fired Me.'' Harper's
Magazine. March 2015 (https://harpers.org/archive/2015/03/the-spy-who-
fired-me/).
\80\ Wood. 2021 at 4 (https://joint-research-centre.ec.europa.eu/
system/files/2021-05/jrc124874.
pdf).
\81\ Kaplap. March 2015 (https://harpers.org/archive/2015/03/the-
spy-who-fired-me/).
Artificial intelligence recruiting and hiring tools run
afoul of civil rights and employment law: Employers are
increasingly using artificial intelligence-
driven tools to recruit, screen, rank, and assess candidates'
interview performances which in turn is affecting prospective
workers' chances of getting hired.\82\ More than two-thirds of
human resources leaders and recruiters were using artificial
intelligence tools to automate recruiting and hiring.\83\ These
systems can entrench the existing subjective preferences that
perpetuate racial and social biases that contribute to
occupational segregation and racial, gender, and economic
inequality.\84\ The data-driven systems purport to be objective
and logical but often have built in biases and rely on faulty
data inputs that amplify the detrimental impacts on
workers.\85\ Some automated applicant screening processes have
made it harder for people with non-white sounding or foreign
sounding names, women, older people, or people with
disabilities to be interviewed and get a chance at a job.\86\
As evidence mounts, the discriminatory impact of these
artificial intelligence screening and hiring processes are
being challenged as potential violations of civil rights and
antidiscrimination laws.\87\
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\82\ Yang. 2020 at 3 and 4 (https://edworkforce.house.gov/download/
jenny-r-yang/default.aspx).
\83\ Ajunwa, Ifeoma. (Ajunwa). Cornell University Industrial and
Labor Relations School. Statement before the Subcommittee on Civil
Rights and Human Services. Committee on Education and Labor. U.S. House
of Representatives. ``The Future of Work: Protecting Workers' Civil
Rights in the Digital Age.'' February 5, 2020 at 3 (https://
edworkforce.house.gov/download/ifeoma-anunwa/default.aspx).
\84\ Yang. 2020 at 4 to 5 (https://edworkforce.house.gov/download/
jenny-r-yang/default.aspx).
\85\ Ibid. at 1.
\86\ Ajunwa. 2020 at 5 to 6 (https://edworkforce.house.gov/
download/ifeoma-anunwa/default.aspx); Yang. 2020 at 4 (https://
edworkforce.house.gov/download/jenny-r-yang/default.aspx).
\87\ Opfer, Chris. ``AI Hiring Could Mean Robot Discrimination Will
Head to Courts.'' Bloomberg Law. November 12, 2019 (https://
news.bloomberglaw.com/daily-labor-report/ai-hiring-could-mean-robot-
discrimination-will-head-to-courts).
Algorithmic management of gig workers suppresses earnings:
Algorithmic management of gig workers erodes workers' economic
security by assigning tasks or suppressing earnings through
pricing algorithms that can overwork and underpay gig workers.
Gig drivers are often paid under algorithmic rates that use
secret calculations to set fares and charges that have tended
to suppress earnings.\88\ The Washington Post reported that
changes to pay rate algorithms pushed earnings down by as much
as 50 percent for the same number of hours and trips.\89\
Platform companies also use algorithms to discipline or block
gig workers from jobs. Algorithms can wrongly downgrade workers
or suspend their accounts without disclosing the alleged
misdeeds or providing a remedy.\90\ These platform
``deactivations'' amount to short-term termination by algorithm
that reduces earnings.\91\ The combination of platform
algorithmic evaluation and discipline pushes workers to work
intensively for long hours without a break.\92\
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\88\ Feliz Leon, Luis. ``How Gig Workers in Canada Are Fighting for
Employee Rights.'' The Real News. March 8, 2022 (https://
therealnews.com/how-gig-workers-in-canada-are-fighting-for-employee-
rights).
\89\ Bhattarai, Abha. `` `Don't game my paycheck': Delivery workers
say they're being squeezed by ever-changing algorithms.'' Washington
Post. November 7, 2019 (https://www.
washingtonpost.com/business/2019/11/07/dont-game-my-paycheck-delivery-
workers-say-theyre-being-squeezed-by-ever-changing-algorithms/).
\90\ Murgia, Madhumita. ``Workers demand gig economy companies
explain their algorithms.'' Financial Times. December 13, 2021 (https:/
/www.ft.com/content/95e7f150-b0f9-4602-8e5d-76a138b59851).
\91\ Kaori Gurley, Lauren. ``Workers Need to Unionize to Protect
Themselves From Algorithmic Bosses.'' Vice. December 19, 2019 (https://
www.vice.com/en/article/epg4b4/workers-need-to-unionize-to-protect-
themselves-from-algorithmic-bosses).
\92\ Wood. 2021 at 10 (https://joint-research-centre.ec.europa.eu/
system/files/2021-05/jrc124874.pdf).
Automated surveillance of workers undermines privacy and
workers' rights: Employers are increasingly deploying advanced
surveillance to monitor workers on the job and even outside the
workplace.\93\ The declining cost of worker surveillance has
been supercharged by artificial intelligence systems that have
made surveillance more prevalent and includes digital cameras,
productivity monitoring applications, key card and RFID
tracking, wearable electronic monitors, geolocating and heat
sensory tracking, keystroke logging, WIFI network logs,
wellness programs, biometrics, and monitoring workers' Internet
search and social media activity.\94\ This surveillance is
often unknown to workers and companies need not receive
workers' consent; the surveillance data is owned by the
employer which can share or sell this data without workers'
approval.\95\
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\93\ Ajunwa, Crawford, and Schultz. 2017 at 738 to 739 (https://
californialawreview.org/print/3-limitless-worker-surveillance/).
\94\ Ibid.; Abril, Danielle. ``Your boss can monitor your
activities without special software.'' Washington Post. October 7, 2022
(https://www.washingtonpost.com/technology/2022/10/07/work-app-
surveillance/).
\95\ Bernhardt, Kresge and Suliman. 2021 at 18 (https://
laborcenter.berkeley.edu/data-algorithms-at-work/).
A worker-centered digital trade agenda must provide meaningful
public policy space to address the impacts of automated decision-making
and algorithmic management on workers and society: The rise of
automated decision-making and artificial intelligence-driven algorithms
poses new challenges to enforce current laws and to address emerging
and novel issues that affect workers and society. The digital trade
source code and algorithm provisions could make it harder for
government to take decisive steps to address existing and new problems
driven by these technologies. A worker-centered trade agenda would
provide sufficient policy space to address these technological
challenges. This should include addressing the corrosive effect that
social media algorithms are having on democracy, civil discourse, and
the mental health of young people as well as the monopolistic power
exerted by platform and e-commerce behemoths. The public policy space
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to protect workers should include, at a minimum:
Meaningful oversight of source codes and algorithms to
ensure compliance with labor and employment laws: Governments
must be able to examine corporate source codes, algorithms, and
other tools of ``AI management'' to fully understand their
impacts and ensure they are compliant with existing labor and
employment laws. In addition, it should facilitate
intergovernmental cooperation to address the risk that AI
management software is undermining worker safety, wage and hour
laws, and anti-discrimination laws.
Policy space to address emerging threats to workers'
privacy, including employer use of workplace surveillance
software: The digital trade data provisions only protect the
personal data of the ``users of digital trade,''\96\ which in
the context of worker privacy is likely the employer that
collects and owns the data and information collected by work-
site surveillance. Governments must have the policy space to
take measures to address digital workplace surveillance and
other emerging threats to workers' privacy.
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\96\ USMCA Art. 19.8.2; U.S.-Japan Art. 15.1.
Addressing abusive employment practices in the technology
sector: Large technology and platform companies have promoted
an exploitative employment model based on rampant employment
misclassification and the outsourcing of core job functions.
Platform gig workers are employed as precarious contractors
without benefits, sick leave, guaranteed minimum wages, or the
ability to form unions and bargain collectively. A worker-
centered digital trade approach would require big technology
companies to clean up the labor abuses in their own operations
and their digital supply chains, including the ghost workers in
the developing world.
iv. other digital provisions present challenges to workers and society
The existing digital trade provisions grant broad rights to
technology firms with limited protections for people and workers.
Beyond the cross-border data and source code provisions, workers can be
negatively impacted by the failure to protect copyrighted material and
the weak protections against cyberattacks.
Digital trade provisions fail to protect and promote the economic
security of creative professionals in the U.S. motion picture,
television, and music industries: The digital trade provisions shield
platform companies from responsibility for the third-party content
posted on their networks that leaves workers in the creative industries
vulnerable to copyright infringement that undermines their economic
security. The USMCA and U.S.-Japan agreements both absolve suppliers of
interactive computer services from ``liability for harms related to
information stored, processed, transmitted, distributed, or made
available by the service.''\97\ This language mirrors the Digital
Millennium Copyright Act language that excludes Internet service
providers from being held responsible as a publisher of content on
their networks.\98\ This absolves platforms and social media companies
from responsibility from users promoting hate speech,\99\ political
disinformation,\100\ or other content that has increasingly been
associated with negative mental health impacts.\101\
---------------------------------------------------------------------------
\97\ USMCA Art. 19.17.2; U.S.-Japan Art. 18.2.
\98\ The Digital Millennium Copyright Act of 1998. 17 U.S.C.
Sec. 512.
\99\ Castano-Pulgarin, Sergio Andres et al. ``Internet, social
media and online hate speech. Systemic review.'' Aggression and Violent
Behavior. Vol 58. 2021 (https://prohic.nl/wp-content/uploads/2021/05/
213-17mei2021-InternetOnlineHateSpeechtSystematicReview.pdf).
\100\ Hiaeshutter-Rice, Dan, Sedona Chinn, and Kaiping Chen.
``Platform Effects on Alternative Influencer Content: Understanding How
Audiences and Channels Shape Misinformation Online.'' Frontiers in
Political Science. May 31, 2021 (https://www.frontiersin.org/articles/
10.3389/fpos.2021.642394/full).
\101\ Twenge, Jean M. et al. ``Increases in Depressive Symptoms,
Suicide-Related Outcomes, and Suicide Rates Among U.S. Adolescents
After 2010 and Links to Increased New Media Screen Time.'' Clinical
Psychological Science. Vol. 6, Iss. 1. November 14, 2017 (https://
journals.sagepub.com/doi/10.1177/2167702617723376).
These provisions also harm the more than 4 million people who work
in the motion picture, television, and music industries. Many of these
workers collectively bargain for payments and contributions to their
health insurance and pension plans that are directly tied to the sales
and licensing of the copyrighted works that they help create.\102\ This
content contributes more than $500 billion to the U.S. economy annually
and generates a trade surplus.\103\ Stolen or unlicensed use of
copyrighted content on digital platforms directly harms these workers,
severely diminishing the payment and benefit contributions they have
bargained for and the ability of their employers to finance future
content creation. Digital trade policy must aggressively address the
stolen or unlicensed use of copyrighted content on digital platforms
that directly harms these workers.
---------------------------------------------------------------------------
\102\ AFL-CIO. Department for Professional Employees. [Fact sheet].
``Creative Professionals Depend on Strong Copyright Protection.''
October 4, 2021 (https://static1.squarespace.com/static/
5d10ef48024ce300010f0f0c/t/615b42671fca1314b3ae3048/1633370727780/
Copyright+one+
pager.pdf).
\103\ AFL-CIO. Department for Professional Employees. [Fact sheet].
``Intellectual Property Theft: A Threat to Working People and the
Economy.'' October 25, 2021 (https://static1.
squarespace.com/static/5d10ef48024ce300010f0f0c/t/
6177099c283f42475e62bc77/16351911
96820/2021+IP+theft+fact+sheet.pdf).
Protect workers and unions from cyber-crime by both state and
private actors: The USMCA and U.S.-Japan digital agreements recognize
the importance of protecting networks and users from cyber-crimes to
prevent the erosion of confidence in digital trade.\104\ Neither
provision acknowledges the impact on workers, people, unions, or other
organizations that may be harmed by cyber-breaches, malware,
ransomware, or other cyber-crimes. The digital trade provisions
discourage regulatory approaches to bolster cybersecurity and
explicitly promote voluntary ``risk-based approaches that rely on
consensus-based standard and risk management best practices'' to
protect against cyber-crimes and respond to cybersecurity events.\105\
---------------------------------------------------------------------------
\104\ USMCA Art. 19.15.1; U.S.-Japan Art. 15.1.
\105\ USMCA Art. 19.15.2; U.S.-Japan Art. 1.2.
Workers and unions can be significantly impacted by cyber-breaches
and ransomware attacks that harm unions, expose workers' personal data,
and affect their earnings if employers are temporarily shut down. In
2014, the United States charged members of the Chinese military with
hacking U.S.-based companies and the United Steelworkers.\106\ In 2019,
the International Brotherhood of Teamsters was subject to a ransomware
attack demanding $2.9 million that forced the union to rebuild its
computer servers.\107\ Cyberattacks against employers can leave workers
vulnerable to unexpected shutdowns and shift cancellations, as happened
to unionized meatpacking workers in 2021.\108\ The United Food and
Commercial Workers International Union was able to secure pay for
workers that lost shifts to the cyber-attack, but these types of
attacks could cost workers' shifts and income if employers are forced
to idle facilities or business locations. A cyber-breach against an
entertainment payroll company potentially exposed the personal
information and bank accounts of Screen Actors Guild-American
Federation of Television and Radio Artists members in 2014.\109\
Digital trade policy must strive to improve cybersecurity and create a
common enforcement agenda to hold the criminals and companies that
facilitate these crimes accountable.
---------------------------------------------------------------------------
\106\ Miller, John. W. ``Pittsburgh-Area Firms Allegedly Targeted
by Hackers.'' Wall Street Journal. May 19, 2014 (https://www.wsj.com/
articles/SB10001424052702304422704579572273980
220140); U.S. Department of Justice. [Press release]. ``U.S. Charges
Five Chinese Military Hackers for Cyber Espionage Against U.S.
Corporations and a Labor Organization for Commercial Advantage.'' May
19, 2014 (https://www.justice.gov/usao-wdpa/pr/us-charges-five-chinese-
military-hackers-cyber-espionage-against-us-corporations-and).
\107\ Allen, Jonathan and Kevin Collier. ``Ransomware attack hits
Teamsters in 2019--but they refused to pay.'' NBC News. June 11, 2021
(https://www.nbcnews.com/tech/security/ransom
ware-attack-hit-teamsters-2019-they-refused-pay-n1270461).
\108\ ``Fallout and Blame: Ransomware Attack Against World's
Largest Meat Producer.'' SecureWorld News. June 1, 2021 (https://
www.secureworld.io/industry-news/cyberattack-global-meat-producer).
\109\ Raman, Jeffrey. ``Entertainment Payroll Firm Breached.''
BankINfo Security. December 4, 2014 (https://www.bankinfosecurity.com/
entertainment-payroll-firm-breached-a-7639); SAG-AFTRA. [Press
release]. ``An Important Announcement About ART Payroll.'' December 2,
2014 (https://www.sagaftra.org/important-announcement-about-art-
payroll).
---------------------------------------------------------------------------
v. conclusion
As the Biden administration continues to remake U.S. trade policy,
its ``worker-centered'' approach must extend to digital trade and the
digital economy by placing the needs of workers, consumers, and society
ahead of the interests of big technology companies.
Too often, the debate over digital trade is framed as a binary
choice between authoritarian digital censorship or the unregulated
status quo that leaves big tech free to collect, control, and commodify
workers and consumers' private data as they see fit. The labor movement
rejects this false choice. Digital trade rules cannot grant broad
powers to big tech and prevent governments from protecting workers from
the downsides of the digital transformation of the economy.
It is time for a strategic re-set on digital trade policy. The
public, including workers and labor unions, must decide the rules of
the road for technology in the workplace and society. There must be a
new democratic, stakeholder-driven approach to data governance that
confronts the negative impacts of digitization on workers, consumers,
and society.
The Biden administration's call for a worker-centered trade policy
is a major opportunity to correct for this narrow, corporate approach
to allow for broader policy space to protect personal data, strengthen
economic security, protect domestic jobs, and tackle the downsides of
the digital transition on workers, consumers, and society. As
democracies seek to create a digital economy that is fair and
inclusive, digital trade policy must also evolve to facilitate new
forms of domestic and international regulation and oversight of the
digital economy.
______
Communications
----------
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Carper and the Ranking Member Cornyn, thank you for the
opportunity to submit these comments for the record to the Subcommittee
on International Trade, Customs, and Global Competitiveness. These
comments are in reaction to the submitted testimony, and would have
dealt with the same issues, regardless, as evidenced by the amount of
material reused from previous comments to both revenue committees and
trade subcommittees.
That the Global South was ignored by the subcommittee and the witnesses
is troubling. For these nations, the digital economy will include
distance learning modalities. While the SpaceX Starlink constellation
has been criticized as not being affordable for most people, a village
or neighborhood could be given a shared link and server.
Distance learning could include STEM, more advanced language
proficiency and a more realistic look at American civic culture in all
of its gore. The way Black and Brown people are really treated may stem
the drive to leave home for a life of low wage labor in America.
In June of this year, we highlighted the fact that the next labor
market to be tapped is Africa. As Asian labor markets mature,
capitalists will seek cheaper workers. American trade policy should
step in to train workers before WalMart's supply chain arrives. From
June, historically . . .
. . . capitalist firms would set up factories in developing
nations with excess labor forces (usually due to modernization
of agriculture or rent seeking by landed elites) and pay the
workers as cheaply as possible. It is the messy way to
industrialize. It seems to work, but it carries human costs
while workers gather the leverage to organize and the power to
increase domestic demand by consumption. Both of these factors
increase wages.
We need not be messy about assisting the Motherland on its road
to industrialization. As capitalism moves toward establishing a
foothold in Africa, our trade policy must be ready to insist on
the right of African workers to organize, partnered with the
American labor movement in helping them to do so. We can
partner with American colleges to establish campuses in sub-
Saharan Africa so that their best and brightest need not come
to us. We can come to them.
Technical assistance on employee ownership (which is still
emergent in the United States), as well as in the creation of
property rights for farmers, is essential. Finally, we can
assist Africa in creating commodity futures markets of their
own so that farmers can obtain working capital by selling
futures and decide whether it is in their interest to sell food
abroad. The natural progress toward industrialization is not
inevitable. It can move past exploitation without stopping
there.
The Ranking Member's opening statement is correct, the Administration
should begin working on restarting a Trans-Pacific Partnership. It was
ill-advised for Secretary Clinton to take it off the table in response
to its rejection by the Stable Genius who pressed the issue, just to
refresh all of our memories of why TPP was dropped.
Much of our supply chain difficulties come from the trade war started
by the prior Administration, although the current administration does
own its continued existence by not acting to reverse Trump's petulance.
In June 2019, we characterized
trade negotiations with China, Japan, the EU, and the UK
threatening tariffs have taken on the character of economic
gunboat diplomacy, but without the Navy. These occur because
the President is ill equipped by his background as a
businessman to work cooperatively, which is the essence of
governance in a free society. He has a freer hand in trade
negotiations. Sadly, his experience as a CEO has not served the
nation well. The modus operandi of most executives is to break
things in order to be seen fixing them. This must stop. The
public is not amused, including the Chamber of Commerce,
farmers and the stock and commodity markets.
In March of 2020, we stated that ``recent developments indicate that
Amateur Hour at the White House over trade policy has ended. Our naked
emperor has moved on to self-defense, allowing the adults to put things
back together again.''
On the security front, the ``digital mercantilism'' of China is
troubling, however, it will not last. The Party has backed down on its
Zero COVID policy, but victory in the streets traditionally means that
taking it to the streets has begun to work. It is a heady thing. There
is no putting the genie back in the bottle. Not in China, not in Iran,
not in post George Floyd America.
In each case, today's protesters and revolutionaries will become the
backbone of the next revolution. For example, when the Civil Rights
revolution made its way to the District of Columbia in 1968, it stayed
to both end discrimination and move toward home rule. While most of
that generation has retired or passed on, the District's delegate is
still going strong.
Again, to repeat prior comments, ``China is still firmly under the
control of their Communist Party and membership still has its
privileges, but the entrepreneurial spirit unleashed there has morphed
into revolution. Their AI industry is often with the support of
American expatriates. It is now surpassing what we can do. Research has
or will soon surpass American progress. China may soon begin talking
about our problems in protecting intellectual property, which are
numerous.''
Let us hope that our Expats also teach Democracy as well as they teach
business.
Economic progress in China is not terribly different from the progress
of economic and political freedom in the Global North of the Western
World. While a Marxist revolution has never occurred in a Marxist
state, a Marxian analysis (not the elevator speech that Stalin and Mao
implemented), society moves forward in largely predictable ways.
Aristocracy (or Party) brings about industrialization under a
capitalistic despotism, which includes militarism and imperialism. As
the peasantry is forced into slave like conditions in urban factories,
they soon acquire skills and savings. Eventually, they demand civil and
union rights, which their capitalist masters resist until a consumer
surplus is required to match the labor surplus, usually because
production exceeds worker income.
Until the revolution occurs, and even after it does, current history
has proven our digital vulnerability. It is simply unwise to keep the
public Internet and the Internet of Technology on the same system.
When I was a cost analyst with the United States Air Force, we had a
dedicated line from the Air Force Finance and Accounting System in
Colorado Springs. This was before the world wide web, but was likely
part of the single system. More recently, as a contract administrator
at the Department of Energy, we worked out a deal with our providers to
allow Verizon to keep control of connections within buildings, while
competing what is called ``pipe'' from buildings to data centers.
To create a TechNet, it is better to keep physical connections separate
rather than trying to program fire walls. In other places, we have
proposed creating a network of overhead power and digital connectivity
for electric vehicles, ending the need to further develop lithium ion
batteries or self-driving cars. Such a system must separate system
communication with Internet communication so that the system cannot be
hacked, all the while letting passengers watch CNN, Fox News or Netflix
on the way to their destinations. This infrastructure would also
provide power to homes, factories and offices.
The next issue is the international use of Big Data, including the one-
sided treatment in China where they see ours, but do not show theirs. I
will further discuss issues of data privacy below, when discussing
employee ownership as an alternative to international labor agreements.
For now, it is important to make a distinction.
Some data is intellectual property to be used in creating a product or
service. Other digital technology is the product, for example, the
reading of an X-Ray by a South Asian doctor working from home. This
work is for pay, so the question is the taxation of internationally
provided services generally, as well as physical products. Readers
familiar with the Center's previous comments know where I am taking
this from here on out.
The United States, in refusing to adopt consumption taxes, has cut off
its nose to spite its face. Under the credit invoice VAT regime,
imported goods and services would lose their VAT burden for what they
export, with the importing nation adding their own VAT at import. Doing
so ends the permanent disadvantage faced by American workers and small
businesses and eliminates the ability of our new Billionaire Class to
borrow against their fortunes to avoid taxation while consuming high-
end goods and creating new ventures.
This should become an electoral issue, or rather, a campaign finance
issue. It would evaporate with public campaign finance. Current
fundraising is the biggest obstacle to real tax reform. Until a
candidate focuses on tax reform the way that Governor Huckabee senior
focused on the Fair Tax, bipartisan corruption will continue and the
working class will continue to lose ground.
As usual, we have included an attachment on how trade would occur in a
VAT-based system. Goods and services taxes would fund general
government and what was the employer contribution to Social Security
(which would from then on be credited on an equal dollar basis rather
than a dollar-for-dollar match). A subtraction VAT on employer labor
and profit will fund services to employees and their families (health
care and the child tax credit federally, education and social welfare
at the state level).
As part of American entry into modern taxation as practiced by the rest
of the Organization for Economic Cooperation and Development, we can
negotiate which taxes are used to fund which activities on a global
basis. No member state should try to push all of its social costs onto
importers because some of these costs benefit worker families--which is
part of doing business in a just economy. The importer benefits from
such systems and should pay for them. Discretionary spending and
retirement taxation, however, can be shed at the border.
To make sure that taxes are collected in the digital economy when due,
especially regarding the use of Big Data in marketing and
manufacturing, those who purchase or use it must be required to buy a
license to do so. This will allow for investigation of how such data is
used or misused and whether it is taxed correctly. In a VAT based
system, imported data that arrives as a product rather than a component
would be taxed on entry, but not as enterprise data.
Corporate income taxes would be abolished in this system. This will end
all of the concerns about taxing intellectual property within an
enterprise. As long as goods and services are taxed appropriately when
consumed (both by invoice and subtraction VAT), the United States can
be agnostic on where patents are held. The recently enacted corporate
minimum tax would thus be repealed. Sadly, the current opposition was
party politics and ignored the fact that this tax was enacted as part
of a larger agreement by the OECD. We signed it, we ratified it and
repealing it must be international.
Please see the second attachment regarding our Asset Value Added Tax
proposal, which comes from our usual tax reform attachment and comments
provided to the revenue committees in their consideration of the
Treasury Department Budget earlier this year. Note that there have been
updates to proposed rates based on recent analyses and the need for
compromise due to the recent election.
Instead of negotiated minimum tax agreements in the OECD, agreements
would be negotiated on Asset VAT rates. These should be uniform to
prevent market shopping and revenues could be dedicated to such items
as common defense (including the United States Navy, etc.) and
international debt forgiveness (to square the circle drawn in the first
section on Africa).
The AFL-CIO's comments are not to be taken lightly, although playing
catch up does not seem to be working well. It is time to shift from
adversarial bargaining to the kind of representation that would take
place where unions and professional organizations in a company hold the
voting proxies of their members at shareholder meetings of employee-
owned companies. Such meetings will replace unitary boards of
directors.
Our second and third attachments from June 2022 and July 2019 provide
detail on the advantages of employee ownership, both here and abroad.
In brief, employee-owned firms would expand their ownership structures
to overseas subsidiaries and to its current supply chain. Transfer
pricing would be based on a common market basket of employee-purchased
goods rather than currency arbitrage.
This would likely require some modification to laws on both trade and
fiduciary rules. Taft-Hartley limitations on how much of an employing
firm a union pension fund can own must also be revised. Zero rating
asset VAT sales to broad based ESOP and cooperative enterprises is also
necessary to end cross-border worker exploitation.
Aside from retention of capitalistic management structures, rather than
cooperative ones, a big reason that ESOPs have not been more widely
sought is the lack of additional cash and prizes. In the United States,
such firms rarely challenge the implicit assumption that household
consumption and finance is left to the household rather than provided
cooperatively. (This is not the case with some overseas trade unions or
cooperatives such as Mondragon).
Not asking the question of whether common consumption, housing and
finance systems should be considered is its own answer. If the question
were actually asked, after informing employee owners of what is
possible, the free market will have workers flock to these firms--
especially in our post-COVID, broken supply chain world. If your
company sells you housing where you can grow your own vegetables and
lab-grown protein, prices never go up.
One advantage of employee and cooperative ownership would deal with the
problem of ``Big Data.'' Employee-controlled financial and consumption
systems will not sell their data or let their suppliers do so. Solving
these issues will also defuse our constant arguments on economics and
on which party is ``winning.'' We can begin to live together again as
neighbors and friends, rather than being manipulated by an increasing
hostile social media space.
Thank you for this opportunity to share these ideas with the committee.
As always, we are available to meet with members and staff or to
provide direct testimony on any topic you wish.
Attachment--Trade Policy and Value-Added Taxes
Consumption taxes could have a big impact on workers, industry and
consumers. Enacting an I-VAT is far superior to a tariff. The more
government costs are loaded onto an I-VAT the better. If the employer
portion of Old-Age and Survivors Insurance, as well as all of
disability and hospital insurance are decoupled from income and
credited equally and personal retirement accounts are not used, there
is no reason not to load them onto an I-VAT. This tax is zero rated at
export and fully burdens imports.
Seen another way, to not put as much taxation into VAT as possible is
to enact an unconstitutional export tax. Adopting an I-VAT is superior
to its weak sister, the Destination Based Cash Flow Tax that was
contemplated for inclusion in the TCJA. It would have run afoul of WTO
rules on taxing corporate income. I-VAT, which taxes both labor and
profit, does not.
The second tax applicable to trade is a Subtraction VAT or S-VAT. This
tax is designed to benefit the families of workers through direct
subsidies, such as an enlarged child tax credit, or indirect subsidies
used by employers to provide health insurance or tuition reimbursement,
even including direct medical care and elementary school tuition. As
such, S-VAT cannot be border adjustable. Doing so would take away
needed family benefits. As such, it is really part of compensation.
While we could run all compensation through the public sector.
The S-VAT could have a huge impact on long term trade policy, probably
much more than trade treaties, if one of the deductions from the tax is
purchase of employer voting stock (in equal dollar amounts for each
worker). Over a fairly short period of time, much of American industry,
if not employee-owned outright (and there are other policies to
accelerate this, like ESOP conversion) will give workers enough of a
share to greatly impact wages, management hiring and compensation and
dealing with overseas subsidiaries and the supply chain--as well as
impacting certain legal provisions that limit the fiduciary impact of
management decision to improving short-term profitability (at least
that is the excuse managers give for not privileging job retention).
Employee owners will find it in their own interest to give their
overseas subsidiaries and their supply chain's employees the same deal
that they get as far as employee ownership plus an equivalent standard
of living. The same pay is not necessary, currency markets will adjust
once worker standards of living rise.
Over time, ownership will change the economies of the nations we trade
with, as working in employee-owned companies will become the market
preference and force other firms to adopt similar policies (in much the
same way that, even without a tax benefit for purchasing stock,
employee-owned companies that become more democratic or even more
socialistic, will force all other employers to adopt similar measures
to compete for the best workers and professionals).
In the long run, trade will no longer be an issue. Internal company
dynamics will replace the need for trade agreements as capitalists lose
the ability to pit the interest of one nation's workers against the
others. This approach is also the most effective way to deal with the
advance of robotics. If the workers own the robots, wages are swapped
for profits with the profits going where they will enhance consumption
without such devices as a guaranteed income.
Asset VAT--The President's Fiscal Year 2023 Budget, June 7, 2022
There are two debates in tax policy: how we tax salaries and how we tax
assets (returns, gains and inheritances). Shoving too much into the
Personal Income Tax mainly benefits the wealthy because it subsidizes
losses by allowing investors to not pay tax on higher salaries with
malice aforethought.
Asset Value-Added Tax (A-VAT) is a replacement for capital gains taxes
and the estate tax. It will apply to asset sales, exercised options,
inherited and gifted assets and the profits from short sales. Tax
payments for option exercises, IPOs, inherited, gifted and donated
assets will be marked to market, with prior tax payments for that asset
eliminated so that the seller gets no benefit from them. In this
perspective, it is the owner's increase in value that is taxed.
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. This change would
be counted as a tax cut, giving investors in public stock who make such
sales the same tax benefit as those who sell private stock.
This tax will end Tax Gap issues owed by high income individuals. The
base 20% capital gains tax has been in place for decades. The current
23.8% rate includes the ACA-SM surtax), while the Biden proposal
accepted by Senator Sinema is 28.8%. Our proposed Subtraction VAT would
eliminate the 3.8% surtax. This would leave a 25% rate in place.
Settling on a bipartisan 22.5% rate (give or take 0.5%) should be
bipartisan and carried over from the capital gains tax to the asset
VAT. A single rate also stops gaming forms of ownership. Lower rates
are not as regressive as they seem. Only the wealthy have capital gains
in any significant amount. The de facto rate for everyone else is zero.
With tax subsidies for families shifted to an employer-based
subtraction VAT, and creation of an asset VAT, taxes on salaries could
be filed by employers without most employees having to file an
individual return. It is time to tax transactions, not people!
The tax rate on capital gains is seen as unfair because it is lower
than the rate for labor. This is technically true, however it is only
the richest taxpayers who face a marginal rate problem. For most
households, the marginal rate for wages is less than that for capital
gains. Higher income workers are, as the saying goes, crying all the
way to the bank.
In late 2017, tax rates for corporations and pass-through income were
reduced, generally, to capital gains and capital income levels. This is
only fair and may or may not be just. The field of battle has narrowed
between the parties. The current marginal and capital rates are seeking
a center point. It is almost as if the recent tax law was based on
negotiations, even as arguments flared publicly. Of course, that would
never happen in Washington. Never, ever.
Compromise on rates makes compromise on form possible. If the
Affordable Care Act non-wage tax provisions are repealed, a rate of 26%
is a good stopping point for pass-through, corporate, capital gains and
capital income.
A single rate also makes conversion from self-reporting to automatic
collection through an asset value-added tax levied at point of sale or
distribution possible. This would be both just and fair, although
absolute fairness is absolute unfairness to tax lawyers because there
would be little room to argue about what is due and when.
Ending the machinery of self-reporting also puts an end to the Quixotic
campaign to enact a wealth tax. To replace revenue loss due to the
ending of the personal income tax (for all but the wealthiest workers
and celebrities), enact a Goods and Services Tax. A GST is inescapable.
Those escapees who are of most concern are not waiters or those who
receive refundable tax subsidies. It is those who use tax loopholes and
borrowing against their paper wealth to avoid paying taxes.
For example, if an unnamed billionaire or billionaires borrow against
their wealth to go into space, creating such assets would be taxable
under a GST or an asset VAT. When the Masters of the Universe on Wall
Street borrow against their assets to avoid taxation, having to pay a
consumption tax on their spending ends the tax advantage of gaming the
system.
This also applies to inheritors. No ``Death Tax'' is necessary beyond
marking the sale of inherited assets to market value (with sales to
qualified ESOPs tax free). Those who inherit large cash fortunes will
pay the GST when they spend the money or Asset VAT when they invest it.
No special estate tax is required and no life insurance policy or
retirement account inheritance rules will be of any use in tax
avoidance.
Tax avoidance is a myth sold by insurance and investment brokers. In
reality, explicit and implicit value-added taxes are already in force.
Individuals and firms that collect retail sales taxes receive a rebate
for taxes paid in their federal income taxes. This is an
intergovernmental VAT. Tax withheld by employers for the income and
payroll taxes of their labor force is an implicit VAT. A goods and
services tax simply makes these taxes visible.
Should the tax reform proposed here pass, there is no need for an IRS
to exist, save to do data matching integrity. States and the Customs
Service would collect credit invoice taxes, states would collect
subtraction VAT, the SEC would collect the asset VAT and the Bureau of
the Public Debt would collect income taxes or sell tax prepayment
bonds. See the last attachment for details on this.
Attachment--A. Employee Ownership, March 7, 2019
Employee ownership is the ultimate protection for worker wages. Our
proposal for expanding it involves diverting an every-increasing
portion of the employer contribution to the Old-Age and Survivors fund
to a combination of employer voting stock and an insurance fund holding
the stock of all similar companies. At some point, these companies will
be run democratically, including CEO pay, and workers will be safe from
predatory management practices. Increasing the number of employee-
owned firms also decreases the incentive to lower tax rates and bid up
asset markets with the proceeds.
Establishing personal retirement accounts holding index funds for Wall
Street to play with will not help. Accounts holding voting and
preferred stock in the employer and an insurance fund holding the
stocks of all such firms will, in time, reduce inequality and provide
local constituencies for infrastructure improvements and the funds to
carry them out.
ESOP loans and distribution of a portion of the Social Security Trust
Fund could also speed the adoption of such accounts. Our Income and
Inheritance Surtax (where cash from estates and the sale of estate
assets are normal income) would fund reimbursements to the Fund.
At some point, these companies will be run democratically, including
CEO pay, and workers will be safe from predatory management practices.
This is only possible if the Majority quits using fighting it as a
partisan cudgel and embraces it to empower the professional and working
classes.
The dignity of ownership is much more than the dignity of work as a cog
in a machine.
B. From Hearing on the 2016 Social Security Trustees Report
In the January 2003 issue of Labor and Corporate Governance, we
proposed that Congress should equalize the employer contribution based
on average income rather than personal income. It should also increase
or eliminate the cap on contributions. The higher the income cap is
raised, the more likely it is that personal retirement accounts are
necessary. A major strength of Social Security is its income
redistribution function. We suspect that much of the support for
personal accounts is to subvert that function--so any proposal for such
accounts must move redistribution to account accumulation by equalizing
the employer contribution.
We propose directing personal account investments to employer voting
stock, rather than an index funds or any fund managed by outside
brokers. There are no Index Fund billionaires (except those who operate
them). People become rich by owning and controlling their own
companies. Additionally, keeping funds in-house is the cheapest option
administratively. I suspect it is even cheaper than the Social Security
system--which operates at a much lower administrative cost than any
defined contribution plan in existence.
If employer voting stock is used, the Net Business Receipts Tax/
Subtraction VAT would fund it. If there are no personal accounts, then
the employer contribution would be VAT funded.
Safety is, of course, a concern with personal accounts. Rather than
diversifying through investment, however, We propose diversifying
through insurance. A portion of the employer stock purchased would be
traded to an insurance fund holding shares from all such employers.
Additionally, any personal retirement accounts shifted from employee
payroll taxes or from payroll taxes from non-corporate employers would
go to this fund.
The insurance fund will save as a safeguard against bad management. If
a third of shares were held by the insurance fund than dissident
employees holding 25.1% of the employee-held shares (16.7% of the
total) could combine with the insurance fund held shares to fire
management if the insurance fund agreed there was cause to do so. Such
a fund would make sure no one loses money should their employer fail
and would serve as a sword of Damocles to keep management in line. This
is in contrast to the Cato/PCSSS approach, which would continue the
trend of management accountable to no one. The other part of my
proposal that does so is representative voting by occupation on
corporate boards, with either professional or union personnel providing
such representation.
The suggestions made here are much less complicated than the current
mix of proposals to change bend points and make OASI more of a needs
based program. If the personal account provisions are adopted, there is
no need to address the question of the retirement age. Workers will
retire when their dividend income is adequate to meet their retirement
income needs, with or even without a separate Social Security program.
No other proposal for personal retirement accounts is appropriate.
Personal accounts should not be used to develop a new income stream for
investment advisors and stock traders. It should certainly not result
in more ``trust fund socialism'' with management that is accountable to
no cause but short term gain. Such management often ignores the long-
term interests of American workers and leaves CEOs both over-paid and
unaccountable to anyone but themselves.
If funding comes through a Subtraction VAT, there need not be any
income cap on employer contributions, which can be set high enough to
fund current retirees and the establishing of personal accounts. Again,
these contributions should be credited to employees regardless of their
salary level.
Conceivably a firm could reduce their S-VAT liability if they made all
former workers and retirees whole with the equity they would have
otherwise received if they had started their careers under a reformed
system. Using Employee Stock Ownership Programs can further accelerate
that transition. This would be welcome if ESOPs became more democratic
than they are currently, with open auction for management and executive
positions and an expansion of cooperative consumption arrangements to
meet the needs of the new owners.
______
Computer and Communications Industry Association
25 Massachusetts Avenue, NW, Suite 300C
Washington, DC 20001
Ph: +1 (202) 783-0070
https://ccianet.org/
The Computer and Communications Industry Association (CCIA) submits the
following Statement for the Record following the November 30, 2022
Senate Finance Subcommittee on International Trade, Customs, and Global
Competitiveness Hearing. CCIA is an international, not-for-profit trade
association representing a broad cross section of communications and
technology firms. For 50 years, CCIA has promoted open markets, open
systems, and open networks. CCIA members employ more than 1.6 million
workers, invest more than $100 billion in research and development, and
contribute trillions of dollars in productivity to the global economy.
CCIA welcomes this opportunity to provide the following recommendations
on the U.S. Trade Policy Agenda relating to the digital economy.
The U.S. should continue to negotiate binding commitments in free trade
agreements that pertain to digital trade and cross-border delivery of
Internet-enabled services. The Digital Trade chapters of the U.S.-
Mexico-Canada Agreement (USMCA) and the U.S.-Japan Digital Trade
Agreement represent the gold standard of digital trade provisions, and
any agreement pursued by the United States that includes digital trade
priorities should reflect those provisions. The United States could
also consider new digital trade disciplines and other high-quality
digital agreements around the world, such as provisions related to
artificial intelligence cooperation found in the Singapore-Australia
Digital Economy Agreement. It is clear that our trading partners around
the world recognize the importance of getting trade rules for the 21st
century right, and it would be a missed opportunity for the United
States to delay its engagement on the global stage in forging
frameworks that enhance U.S. competitiveness and reflect our values.
At the same time, the United States should not fundamentally overhaul
trade policy to undermine the benefits robust trade engagement confers
to U.S. industry and consumers. While policymakers are encouraged to
reassess approaches to international trade in light of new challenges
and the changing global economy, it would be a step backwards to revise
these commitments in future agreements that expand exceptions and/or
overall weaken the effectiveness of such rules. The United States
should continue to pursue high standard agreements that facilitate
global commerce, rather than adopting the approach of China in crafting
multilateral agreements that have broad exceptions that render
commitments meaningless like it is in the case of the Regional
Comprehensive Economic Partnership (RCEP). It is important to note that
any obligations undertaken are only with respect to partners the United
States has chosen, and thus fears that strong rules incentivize trade
with or investment in nations whose interests are inimical to ours are
misplaced.
Finally, it is also worth noting that IPEF members with whom we already
have FTAs--Singapore, Korea, Australia--already benefit, by virtue of
MFN status, from some of the key enhancements negotiated in USMCA, that
are absent in our existing bilateral FTAs. Thus, for example, these FTA
partners currently enjoy the benefits of strong data flow and data
localization rules (including for financial services) that the United
States does not enjoy in their markets.\1\
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\1\ If these countries were to take on similar binding commitments
in an FTA with another country, we would equally enjoy rights in their
market under MFN, but no country has replicated USMCA standards in
full.
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DIGITAL TRADE RECOMMENDATIONS \2\
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\2\ These Recommendations reflect more extensive recommendations
CCIA has filed with the Office of the U.S. Trade Representative and
Department of Commerce in ongoing trade discussions such as IPEF,
available at https://www.ccianet.org/2022/04/ccia-offers-
recommendations-for-u-s-policymakers-on-indo-pacific-economic-
framework/.
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Enable cross-border data flows in digital services.
U.S. trade policy should further enable digital trade and the U.S.
should be ambitious in its negotiations with respect to data flows and
localization barriers. Cross-border data flows are critical to digital
trade, and forced localization mandates make it difficult for U.S.
exporters to expand into new markets. Analysis from the OECD has
revealed an increasing level of restrictiveness for digitally-enabled
services in part due to restrictions on cross-border movement of
data.\3\ Cross-border data flows are the lifeblood of global digital
trade and by extension the array of industries that increasingly rely
on the Internet to compete in the global marketplace. In the U.S., the
productivity gains and efficiencies enabled by data flows have boosted
the economy by hundreds of billions of dollars.
---------------------------------------------------------------------------
\3\ OECD Services Trade Restrictiveness Index: Policy Trends up to
2020, available at https://issuu.com/oecd.publishing/docs/oecd-stri-
policy-trends-up-to-2020?fr=sNmVlNzYxOTI3Mw.
With an uptick in data-related barriers in recent years, trade
discussions and clear rules are critical to ensure that any
restrictions on the transfer, storage, and processing of data are
targeted in a manner that does not unreasonably limit legitimate cross-
border trade. Policies that restrict data flows, either directly
through explicit data and infrastructure localization requirements, or
indirectly for national security or other purposes, negate the
productivity gains and efficiencies enabled by Internet platforms and
cloud computing while often simultaneously undermining digital security
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globally.
The U.S. should continue to pursue rules that prohibit governments from
interfering with data flows or the exchange of information online, and
prohibit regulations or standards that condition market access,
procurement, or qualification for widely-used certifications based on
nationality of ownership, location of corporate headquarters, or size
of company.
Specifically, rules should prohibit governments from imposing data
localization or local presence requirements on data controllers or
processors, as well as linking market access and/or commercial benefits
to investment in or use of local infrastructure. Often, such policies
not only restrict foreign market access and investment, they become
counter-productive as they hinder services providers' ability to
diversify and backup data, instead centralizing it all in one or a
handful of local data centers. These rules should also extend to
financial services. To the extent possible, these prohibitions should
apply to both explicit and indirect measures such as ill-fitting
privacy and cybersecurity measures, industrial policy, and censorship
disguised as national security protections to keep data in a particular
country.
CCIA cautions strongly against introducing new exceptions to trade
rules applicable to localization and cross-border data flows as a
response to claims that trade rules constraint domestic regulatory from
activating in the public interest. While requirements over how data is
stored, processed, and transmitted may well evolve over time, the
existing rules do not constrain such evolution. In the rare cases where
localization can be justified, existing exceptions provide broad scope
for addressing legitimate policy concerns.
Foster trust in digital services and growth of new technologies.
Trust is fundamental to the growth and cross-border delivery of these
services. Without adequate privacy protections and security in digital
communications, governments may continue to enact restrictions on
cross-border services citing perceived risks. Privacy and consumer
protections and trade rules should work in tandem to further the goals
of initiatives promoting trustworthy data flows. To that end, trade
agreements should encourage the development of national privacy
legislation that sets clear rules on the use of personal data
domestically, promote the adoption of bilateral and multilateral
agreements on government access to data such as those being pursued by
the OECD,\4\ and commit to codify protections for valid basis for
transfer of personal data such as the APEC Cross-Border Privacy Rules
into domestic law.
---------------------------------------------------------------------------
\4\ See https://www.oecd.org/digital/trusted-government-access-
personal-data-private-sector.
htm; https://www.oecd.org/newsroom/landmark-agreement-adopted-on-
safeguarding-privacy-in-law-enforcement-and-national-security-data-
access.htm.
With respect to artificial intelligence (AI), trade agreements should
encourage the adoption and deployment of trustworthy AI technologies by
referencing principles and agreements that reflect multi-stakeholder
input such the OECD Council Recommendations on Principles for
responsible stewardship of trustworthy AI or the goals referenced in
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the White House's AI Bill of Rights.
Prohibit customs duties for electronic commerce.
Imposing customs requirements on purely digital transactions creates
significant and unnecessary compliance burdens on nearly all
enterprises, including small and medium-sized enterprises (SMEs). The
moratorium on imposing customs duties for electronic transmissions has
been key to the development of global digital trade and shows the
international consensus with respect to the digital economy. The
moratorium was most recently renewed at the 12th WTO Ministerial
Conference in June 2022, and the commitment not to impose duties on
electronic transmissions is reflected in the number of commitments made
in free trade agreements among multiple leading digital economies.
Permanent bans on the imposition of customs duties on electronic
transmissions are a frequent item in trade agreements around the world
and have been part of all U.S. FTAs for the past two decades.
The United States should continue to embed in trade agreements
commitments resulting in a permanent ban on the imposition of customs
duties on electronic transmissions. Enshrining the moratorium in
agreements would enhance bilateral trade while also continuing to
discourage other countries from including electronic transmission in
their domestic tariff codes, as one IPEC member, Indonesia, has already
sought to do.
Prohibit unilateral and discriminatory taxes.
International trade requires a consistent and predictable international
tax system, and tax measures play a significant role in the global
competitiveness of U.S. companies. Any country that the United States
seeks a trade agreement with should not impose digital taxation
measures that are discriminatory in nature and contravene long-standing
principles of international taxation, and the U.S. should seek to
include commitments not to pursue unilateral and discriminatory digital
taxation measures in forthcoming trade and economic pacts.
Address state-censorship practices and combat rising digital
authoritarianism.
Censorship and denial of market access for foreign Internet services
has long been the case in restrictive markets like China, but it is
becoming increasingly common in emerging digital markets, including
those of major trading partners, and even in some larger developed
markets and is accomplished through different tools and methods.\5\
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\5\ The U.S. International Trade Commission released its report on
foreign censorship policies in January 2022 and detailed how extensive
these practices have become. U.S. International Trade Commission,
Foreign Censorship, Part 1: Policies and Practices Affecting U.S.
Businesses (February 2022), available at https://www.usitc.gov/
publications/332/pub5244.pdf at 21.
Allied governments have a critical role to play in partnering with
technology companies and leading in the defense of Internet freedom and
open digital trade principles. Government-imposed restrictions of
digital services and online content can take multiple forms, and the
risks associated with each method or regulatory framework providing for
---------------------------------------------------------------------------
censorship methods can vary greatly.
The U.S. should work with trading partners to address rising digital
authoritarianism and state-censorship practices that pose threats to
the open Internet and freedom of expression around the world. Countries
should affirm commitments under Article 19 of the International
Covenant on Civil and Political Rights as they apply to defending free
expression online. Making Article 19 binding and enforceable under a
trade agreement would significantly enhance the value of this
commitment. Parties should pursue commitments to refrain from blocking
or restricting access to lawful online content, digital services, and
infrastructure underlying Internet delivery. This is consistent with
the goals of the U.S.-led Declaration for the Future of the Internet
that encourages like-minded countries to promote fundamental freedoms
online and combat actions by authoritarian governments. The United
States should look to embed similar commitments to ensure an open
Internet in trade disciplines as well.
Secure digital communications and devices and prevent bans on
encryption.
Providers of digital devices and services continue to improve the
security of their platforms through the deployment of technologies that
safeguard the communications and commercial transactions that they
enable. Strong encryption has been increasingly enabled on now-
ubiquitous smartphones and deployed end-to-end on
consumer-grade communications services and browsers. Encrypted devices
and connections protect users' sensitive personal and financial
information from bad actors who might attempt to exploit that
information.
Many countries, at the behest of their respective national security and
law enforcement authorities, have passed laws that mandate access to
encrypted communications. Often the relevant provisions are not
explicit, but mandate facilitated access, technical assistance, or
compliance with otherwise infeasible judicial orders. Other versions
require access to or transfer of source code related to encryption as a
condition of allowing technology imports. Such exceptional access
regimes run contrary to the consensus assessments of security
technologists because these rules are technically and economically
infeasible to develop and implement. Companies already operating in
countries that have or are considering anti-encryption or source code
access laws will be required to alter global platforms or design
region-specific devices, or face fines and shutdowns for noncompliance.
Companies that might have otherwise expanded to these markets will
likely find the anti-encryption or facilitated access requirements to
be barriers to entry.
The United States should continue efforts to promote regulatory
cooperation and international standards and best practices for securing
products and services. Trade agreements should contain commitments to
promote encrypted devices and connections, and adherence to frameworks
such as the NIST-developed Cybersecurity Framework. Specifically, the
agreement should prevent countries from compelling manufacturers or
suppliers to use a particular cryptographic algorithm or to provide
access to a technology, private key, algorithm specification, or other
cryptographic design details. Similarly, the agreement should prohibit
governments from conditioning market access, with appropriate
exceptions, on their ability to demand access to cryptographic keys or
source code.
Additionally, the agreement should include commitments for partners to
pursue risk-based cybersecurity measures, and utilization of open,
consensus-based international standards as they are the more effective
approach in comparison to prescriptive regulation. Trading partners
should pursue cooperative approaches to cybersecurity and incident
responses, including sharing of information and best practices with
respect to vulnerability disclosure.
Foster innovation in artificial intelligence.
Emerging technologies such as artificial intelligence (AI) and machine
learning, as well as quantum computing, increasingly impact cross-
border trade, and trade rules increasingly govern the development and
growth of these technologies. The United States should ensure
regulatory practices and technical standards are in alignment to foster
open lines of cooperation. To continue to use and export AI and other
emerging technologies, businesses and users need a trade framework that
allows them to move data and infrastructure safely across borders while
ensuring that other countries will not misuse legal systems to impede
the growth of new technologies. This will enable use of emerging
technologies in addressing global challenges such as public health,
humanitarian assistance, and disaster response. Work on promoting AI
alignment and export competitiveness should not clash or otherwise
undermine existing efforts such as the ongoing National Institute of
Standards and Technology AI Risk Management Framework process aimed at
implementing a risk-based and flexible AI regulatory landscape.
Trade rules that can facilitate the responsible cross-border growth of
AI technologies include those that enable cross-border data flows and
remove localization requirements; encourage governmental investment in
and release of open data; identify and share best practices for the
responsible use of AI; engage in cooperation and public-private
collaboration on AI; and adopt innovation-oriented copyright rules that
enable machine analysis of data. In addition, to ensure substantive
convergence and avoid the potential for discriminatory outcomes, the
U.S. and its trading partners should agree to avoid adopting any
measures that discriminate against U.S. suppliers who excel in this
area by providing less favorable treatment to AI products or
applications than they give to like products or applications without an
AI component.
As a matter of good regulatory practice, the development and
implementation of AI regulations should include: adopting a risk-based
approach, including transparent processes for assessing, managing, and
mitigating risks associated with specific AI applications; assessing
whether potential risks can be mitigated or addressed using existing
instruments and regulatory frameworks; considering whether any new or
proposed regulation is proportionate in balancing potential harms with
economic and social benefits; employing risk management best practices,
including considering the risk-substitution impact of a specific AI
application against a scenario where that application has not been
deployed but baseline risks remain in place; and promoting the
development of voluntary consensus standards to manage risks associated
with AI applications in a manner that is adaptable to the demands of
dynamic and evolving technologies.
In addition to trade rules, countries should work together to
facilitate research and development of new applications of AI to
address shared challenges; facilitate dialogues among all stakeholders
including governments, civil society, academia, and the private sector
on best regulatory practices; and pursue joint discussions on the
responsible and ethical use of AI.
Promote global practices on Internet access and interconnection
policies.
The United States should work to protect the interoperable and
interconnected nature of the global Internet architecture that enables
cross-border data flows, support principles of non-discrimination and
market access to telecommunications networks, and enable stakeholders
to negotiate the nature of services to be delivered across the network
on a voluntary market-driven basis, based on reasonable business
practices agreed upon by both sides.
Globally, the business practice on Internet interconnection is for
content and application providers and ISPs to enter into agreements
through autonomous negotiations. To protect the Internet ecosystem, the
growth of the tech industry globally, and ensure these investments can
continue to flourish and support digital trade, the United States
should seek to include assurances that Internet-based
telecommunications service providers seeking the exchange of traffic
with content and application providers, and vice versa, are able to
negotiate with the other party on a voluntary, market-driven basis in
this agreement. Trade rules should prevent new mandates to negotiate
with ISPs, and the unilateral imposition of fees, as a condition for
reaching end-user customers. This builds on existing trade rules that
ensure that access to domestic telecommunications networks is
facilitated on reasonable and non-discriminatory terms.
Commit to following good regulatory practices.
The global Internet economy is at a pivotal moment in its development.
Countries are moving quickly to introduce new, at times experimental,
regulatory frameworks for digital services, and seek to craft rules on
the development of emerging technologies with the aim to ensure that
the digital economy remains a tool for openness and free exchange that
has led to unprecedented growth and opportunity.
As new proposals are introduced around the world, countries should
commit to following good regulatory practice and work together to
ensure that regulations do not have unintended impacts. International
regulatory cooperation is an important tool for improving regulatory
quality, reducing the likelihood of creating trade barriers or
unnecessary regulatory differences, aligning regulation with shared
principles and values, avoiding unintended consequences or conflicts
with broader foreign policy objectives, building trust and expertise
among regulators, and deepening understanding of trends in regulatory
governance to inform current and future approaches to policymaking. As
new regulations take effect in foreign markets, it will be essential
that the U.S. work with trading partners to ensure that implementing
regulations are fair, implemented in a non-discriminatory manner
against foreign firms, and are subject to adequate oversight and due
process.
The United States should pursue governing principles of the digital
economy that ensure that regulations should be non-discriminatory and
principles-based, made pursuant to a transparent regulatory process,
ensure due process to those affected, and include adequate safeguards
to reduce the impact of any unintended consequences.
Address technical barriers to trade.
U.S. technology exporters face a growing number of non-tariff measures
such as technical regulations, conformity assessment practices, and
standards-based measures. Adoption of global standards is critical to
ensuring regulatory coherence and avoiding country-specific standards
that deter market entry. Some U.S. cloud service providers (CSPs) have
been unable to serve the public sector due to onerous security
certification requirements that deviate from internationally accepted
standards and make it impossible for CSPs to comply without creating a
market-unique product, including physically segregating facilities for
exclusive use for government-owned customers and onshoring of data. The
adoption of country-specific standards creates de facto trade barriers
for U.S. companies and raises the costs of cutting-edge technologies
for consumers and enterprises.
The United States should (1) pursue commitments like those outlined in
USMCA Chapter 11 on addressing technical barriers to trade; and (2)
pursue commitments to follow good regulatory practices of these
commitments in the development of standards, regulations, and
conformity assessment procedures for services.
Enable trade in electronic payment services.
Electronic payment (e-payment) systems which are interoperable across
borders are critical in enabling the growth of cross-border digital
trade. Trade policy can help drive the development of cross-border e-
payment systems through commitments on the free flow of data including
financial services data, promoting interoperability through
international standards, and encouraging open innovation and
competition through the adoption of open e-payment models such as real-
time payments (RTP) systems and encouraging open application
programming interfaces (APIs) to allow all e-payment service providers
to compete. Additionally, the United States should pursue provisions on
electronic signature, electronic authentication, paperless trading, and
other best practices often included in trade agreements.
Promote copyright frameworks that enable emerging technologies
and digital services.
As part of U.S. trade policy, the U.S. should promote intellectual
property frameworks that reflect U.S. law and secure commitments that
will foster innovation in emerging technologies. This is reflected in a
few areas of copyright traditionally included in trade agreements.
First, a flexible copyright regime is necessary for the continued
growth of the digital economy. Principles such as fair use are a
cornerstone of U.S. copyright law and industries that rely on this
right are a significant contributor to the U.S. economy and exports.
Fair use is also critical to activities central to new areas of
innovation and cutting-edge technology such as artificial intelligence
and text and data mining. Additionally, mandated technological
protection measures (TPMs) are a frequent inclusion in U.S. trade
agreements. Corresponding statutory exceptions to these
anticircumvention measures are a critical component of these
provisions. Consistent with USMCA, any TPM provision should include
exceptions to anti-circumvention that are consistent with 17 U.S.C.
Sec. 1201, including Sec. 1201(f) on reverse engineering and
interoperability, in providing limitations and exceptions to TPMs.
Intermediary liability protections for Internet service providers, such
as the framework in Section 512 of the Digital Millennium Copyright Act
in the United States, have been critical to growing the U.S. digital
economy by providing business certainty to U.S. investors and
innovators. U.S. trade policy has long reflected domestic copyright
principles by including necessary intermediary protections for online
services in trade agreements dating back to 2003. USMCA continues this
tradition, drawing directly upon Title 17 of the U.S. Code.
______
E-Merchants Trade Council, Inc.
1655 North Fort Myer Drive, Suite 700
Arlington, VA 22209
(703) 574-0000
https://www.emtc.org/
On behalf of the E-Merchants Trade Council, Inc. (EMTC), I am Marianne
Rowden, CEO of EMTC and respectfully submit this statement for the
record. EMTC appreciates the opportunity to comment concerning the
topics covered in the hearing on ``Opportunities and Challenges for
Trade Policy in the Digital Economy'' held on November 30, 2022.
EMTC was formed in July 2021 to represent the interests of the e-
commerce industry by creating a global community of micro, small and
medium size enterprise (MSMEs) e-sellers, marketplace platforms, and
service providers to resolve trade, tax and transportation challenges.
EMTC's advocacy mission is to support national and international
policies that simplify cross-border transactions of physical and
digital goods. EMTC facilitates dialogue among the E-Merchant worldwide
community and global regulators.
EMTC applauds the Subcommittee for holding this hearing on
``Opportunities and Challenges for Trade Policy in the Digital
Economy.'' We recommend that the Subcommittee hold more hearings,
roundtable discussions, and town hall meetings throughout the United
States to receive testimony, comments and input from as many
stakeholders as possible since the United States' trade policy on
digital trade affects every segment of American society. EMTC's
comments address the three (3) issues posed to the witnesses during the
hearing.
1. What is Digital Trade?
As noted in the introductory paragraph describing EMTC, we use the
nomenclature of ``digital trade'' to describe ``digital goods'' or
electronic articles such as software, images, music, games etc. that
are non-physical and transmitted via the Internet by e-mail, the cloud,
etc.\1\ EMTC makes this distinction for cross-border transactions due
to the long-standing general rule under Treasury Decision 85-124 that
software is classified under heading 8523 of the Harmonized Tariff
Schedule of the United States (HTSUS) but the duty is based on the
declared value of the carrier medium (e.g., CD-ROM, USB drive, floppy
disk, magnetic tape). EMTC also views ``digital trade'' to encompass
all the rules governing data (e.g., privacy, localization, etc.).
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\1\ We note that the World Trade Organization (WTO) has defined
``electronic commerce'' as ``the production, distribution, marketing,
sale or delivery of goods and services by electronic means.'' See Work
Programme on Electronic Commerce (Adopted by the General Council on
September 25, 1998) at: https://docs.wto.org/dol2fe/Pages/SS/
directdoc.aspx?filename=q:/WT/L/274.pdf
&Open=True. The World Customs Organization (WCO) defines ``cross-border
e-commerce'' as ``all transactions which are effected digitally through
a computer network (e.g., the Internet) and result in physical goods
flow subject to Customs formalities.'' See WCO Framework of Standards
on Cross-Border E-Commerce Definitions at: https://www.wcoomd.org/-/
media/wco/public/global/pdf/topics/facilitation/activities-and-
programmes/ecommerce/2_definitions_en.pdf?db=
web.
Traditionally, customs regimes regulated physical goods for assessing
customs duties. Since adopting the Declaration on Global Electronic
Commerce in 1998, the WTO members agreed to a moratorium on customs
duties on electronic transmissions, which has been revisited and
extended by the WTO every two years at its ministerial conference.\2\
In 2021, India and South Africa put forward a communication on The
Moratorium on Customs Duties on Electronic Transmissions: Need for
Clarity on its Scope and Impact.\3\ We note that the moratorium applies
to the ``transmission'' and not the assessing of customs duties on the
content of the transmission (e.g., the value of the software, music,
image, etc.).
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\2\ See, Declaration on Global Electronic Commerce (Adopted May 20,
1998) at https://docs.wto.
org/dol2fe/Pages/SS/
directdoc.aspx?filename=q%3A%2FWT%2FMIN98%2FDEC2.pdf&Open=
True.
\3\ See, The Moratorium on Customs Duties on Electronic
Transmissions: Need for Clarity on its Scope and Impact (Adopted
November 8, 2021) at: https://docs.wto.org/dol2fe/Pages/SS/
directdoc.aspx?filename=q%3A%2FWT%2FGC%2FW833.pdf&Open=True.
We echo the hearing witnesses' concern that the Moratorium is set to
expire by the next WTO Ministerial Conference (scheduled for December
2023) or March 31, 2024, if the ministerial is delayed.\4\ EMTC's
policy preference is for the United States to lead the effort to make
the moratorium permanent. However, EMTC is alarmed that there are no
discussions in any country about how customs administrations will
implement the mechanisms to assess and collect customs duties on
digital transmissions and to subject digital goods to the same
regulatory requirements as physical goods.
---------------------------------------------------------------------------
\4\ See, Work Programme on Electronic Commerce Draft Ministerial
Decision of June 16, 2022 at: https://docs.wto.org/dol2fe/Pages/SS/
directdoc.aspx?filename=q%3A%2FWT%2FMIN22%2
FW23.pdf&Open=True.
---------------------------------------------------------------------------
2. Why is Digital Trade Important?
EMTC believes it is critical for Congress to set United States digital
trade policy because of the convergence between digital and physical
goods as a result of the state of flux in the WTO e-commerce
negotiations. Moreover, digital trade comprises an increasing
percentage of global trade, particularly for the United States as a
leader in digital goods and services.
We recommend that the Subcommittee create a framework that acknowledges
the new entities engaged in cross-border trade for both e-commerce of
physical goods (e.g., foreign sellers, e-commerce marketplace
platforms, fulfillment houses, logistics companies) and trade in
digital goods. It is critical that the Subcommittee properly allocate
regulatory responsibilities appropriate to the role of the entity in
the transaction as there may be more or different intermediaries and
agents involved in cross-border shipments rather than a single
manufacturer/shippers, carrier, customs broker, and importer of record.
Moreover, it is important that any policy (and proposed statute) is
neutral so that it does not disadvantage any company's business model,
such as imposing the same regulatory requirements on marketplaces
regardless of whether they provide logistics services handling the
goods versus offering a means of a sales transaction. Likewise, EMTC
urges the Subcommittee to be sensitive to the impact of regulatory
requirements on small-medium size e-sellers as they are only able to
engage in global trade through e-commerce and work on low profit
margins due to competition and the numerous fees that marketplaces
charge.
EMTC believes that future trade agreements, such as the Indo-Pacific
Economic Framework (IPEF), should include specific chapters on Customs
and Trade Facilitation similar to Chapter 7 of the United States Canada
Mexico Agreement (USMCA) which emphasizes trade facilitation:
Article 7.1: Trade Facilitation
1. The Parties affirm their rights and obligations under the
Agreement on Trade Facilitation, set out in Annex 1A to the WTO
Agreement.
2. With a view to minimizing the costs incurred by traders
through the importation, exportation, or transit of a good,
each Party shall administer its customs procedures in a manner
that facilitates the importation, exportation, or transit of a
good, and supports compliance with its law.
3. The Parties shall discuss within the Trade Facilitation
Committee established under Article 7.24 (Committee on Trade
Facilitation) additional measures to facilitate trade. The
Parties are encouraged to adopt additional measures that build
on the obligations in this Chapter with a view to further
facilitating trade.
See, USMCA Ch. 7 on Customs Administration and Trade Facilitation at
https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/
07_Customs_Ad
ministration_and_Trade_Facilitation.pdf. Often importers and exporters
find themselves in the difficult situation of regulatory agencies
interpretation of a free trade agreement which eviscerates the spirit
of free trade in order to meet regulatory compliance requirements.
Therefore, negotiators should prioritize ``minimizing the costs
incurred by traders'' and facilitate trade.
a. Increase De Minimis
As a preliminary point, we note that e-commerce is not the same as de
minimis and vice versa--that is, not all e-commerce shipments are
entered as low-value shipments under 19 U.S.C. Sec. 1321 and not all de
minimis shipments were ordered online. For EMTC's members who are
service providers (e.g., customs brokers, logistics companies, etc.),
whether an article is ordered online makes no difference to its
handling in a cross-border transaction.
EMTC strongly believes that the United States should prioritize getting
other countries to increase their de minimis threshold for low-value
shipments. This will go a long way to increase MSME participation in
global trade, especially for U.S. e-seller exporters. Most other
countries have a de minimis level between $0 and $200 whereas the
United States de minimis threshold is $800. The United States was
successful in getting Canada and Mexico to increase those countries' de
minimis in the USMCA.
Title 19 U.S.C. Sec. 1321 on Administrative Exemptions has been part of
the customs statute since the Tariff Act of 1930. Specifically, the de
minimis threshold under 19 U.S.C. Sec. 1321(a)(2)(C) for articles free
of duty ``in any other case'' was initially set at $1 and periodically
raised by Congress--first, to $5 in 1978, and $200 in 1993 as part of
the Customs Modernization Act, Title IV of NAFTA.\5\ Congress increased
the de minimis to $800 recently in the Trade Facilitation and Trade
Enforcement Act of 2015, Pub. L. 114-125, 130 Stat. 223. As these
amendments demonstrate, Congress has raised the de minimis every few
decades taking into account the erosion of purchasing power as a result
of inflation. EMTC believes this level for de minimis is appropriate
given reports of inflation at over 6% for 2021 and in excess of 7.5%
year-to-date. Congress should commit support for the current U.S. de
minimis level and stress for near reciprocity in treatment of low-value
shipments in the Indo-Pacific countries within a limited phased
implementation period.
---------------------------------------------------------------------------
\5\ See, list of legislative amendments for 19 U.S.C. Sec. 1321 at
https://uscode.house.gov/view.xhtml?path=/prelim@title19/
chapter4&edition=prelim.
EMTC is aware of the possibility of Congress revisiting de minimis and
lowering the threshold under 19 U.S.C. Sec. 1321(a)(2)(C) in the
America COMPETES Act (Import Security and Fairness Act),\6\ but we
believe that such policy instability makes it very difficult for
companies to plan when they have organized their business operations
based on the $800 threshold level. It is precisely because Congress has
only increased the de minimis threshold infrequently every few decades
that makes the possibility of a change after only six (6) years from
passage of TFTEA in 2016 greatly concerning to the trade community,
particularly e-commerce marketplace platforms, e-sellers and companies
that provide trade and transportation services to e-commerce companies.
---------------------------------------------------------------------------
\6\ See, Import Security and Fairness Act, H.R. 6412, 117th
Congress (2022).
Since the passage of TFTEA in 2016, the trade community faced the
prospect of lowering the de minimis threshold under 19 U.S.C.
Sec. 1321(a)(2)(C) twice. First, during the negotiation of the USMCA in
2019, the Administration negotiated to raise the de minimis threshold
for imports to Mexico (to $117) and Canada (to $150), but included a
---------------------------------------------------------------------------
footnote:
Notwithstanding the amounts set out under this subparagraph, a
Party may impose a reciprocal amount that is lower for
shipments from another Party if the amount provided for under
that other Party's law is lower than that of the Party.
USMCA Ch. 7 Customs Administration and Trade Facilitation, Article
7.8.1(f) Express Shipments, footnote 3 at 7-7.\7\ As a result of the
trade community's advocacy efforts, Congress wrote a letter to the U.S.
Trade Representative (USTR) stating:
---------------------------------------------------------------------------
\7\ See, https://ustr.gov/sites/default/files/files/agreements/FTA/
USMCA/Text/07_Customs_
Administration_and_Trade_Facilitation.pdf.
We strongly oppose any effort by the Executive Branch to lower
the current $800 de minimis threshold through USMCA
implementing bill, including any amendment to 19 U.S.C. 1321
that would grant the Executive Branch additional authority to
---------------------------------------------------------------------------
decrease or eliminate the threshold.
The U.S. de minimis threshold is a policy recently set by
Congress, which raised the threshold from $200 in 2016. The
current de minimis threshold still enjoys wide bipartisan
support in Congress and throughout the manufacturing, retail,
logistics, and e-commerce landscapes. In our view, it is
neither necessary, appropriate, nor desirable to change this
policy in U.S. law as part of the implementation of USMCA's
requirements. In fact, we consider that such an effort would
amount to an override of Congressional authority by the
Executive Branch, and thus would be entirely inappropriate.
Letter from the Congress of the United States to Ambassador Robert E.
Lighthizer, U.S. Trade Representative dated October 18, 2019.\8\ EMTC
believes that the better policy from a U.S. leadership position is to
get other countries to raise their de minimis threshold, as the U.S.
accomplished in the USMCA, rather than to lower the U.S. de minimis.
---------------------------------------------------------------------------
\8\ See letter at: https://schweikert.house.gov/2019/01/10/
congressman-david-schweikert-leads-letter-representative-lighthizer/.
---------------------------------------------------------------------------
3. How Can the U.S. Work with its Allies?
EMTC is concerned that there are numerous allies, particularly its
largest trading partners (e.g., the European Union) where trade policy
is diverging, including:
a. Small-medium e-sellers' compliance with the U.S. 1099K income
reporting at $600 requirement;
b. Updating import and export data for low-value shipments;
c. Algorithmic decision-making for compliance and risk
management;\9\
---------------------------------------------------------------------------
\9\ The European Parliamentary Research Service has produced a
study in March 2019 on ``Understanding Algorithmic Decision Making:
Opportunities and Challenges'' and a number of factors mentioned come
from this report (applied in a customs context), which can be found at:
https://www.europarl.europa.eu/RegData/etudes/STUD/2019/624261/
EPRS_STU(2019)62426
1_EN.pdf. The United States' National Institute of Standards and
Technology has released its ``AI Risk Management Framework: Second
Draft'' at: https://www.nist.gov/system/files/documents/2022/08/18/
AI_RMF_2nd_draft.pdf.
---------------------------------------------------------------------------
d. U.S. implementation of the OECD tax treaty (Pillar II) and the
UN vote on global tax standards;
e. The EU's Carbon Border Adjustment Mechanism;
f. Changes to de minimis and Value Added Tax rates for low-value
shipments; and
g. The different approaches of the EU and the U.S. on regulating
the digital economy (e.g., the EU's Digital Markets Act and Digital
Services Act).
Our observation is that the European Union has chosen to create a
new body of law to regulate the digital economy whereas the United
States seems to be integrating digital provisions into existing titles
of federal statute. As a result, the process of aligning policies with
our trading partners may be a challenge.
4. Conclusion
In summary, EMTC believes that the Subcommittee should carefully
consider creating a trade policy which creates a framework to integrate
equal treatment of physical and digital goods, accommodate new entities
in the global trade ecosystem, and does not create regulatory burdens
on MSME e-sellers, such as lowering the de minimis under 19 U.S.C.
Sec. 1321(a)(2)(C).
EMTC appreciates the opportunity to comment on the testimony presented
at the hearing on Opportunities and Challenges for Trade Policy in the
Digital Economy, and we are happy to discuss the ideas expressed above
in more detail.
______
Engine Advocacy
700 Pennsylvania Ave, SE
Washington, DC 20003
December 7, 2022
U.S. Senate
Committee on Finance
Subcommittee on International Trade, Customs, and Global
Competitiveness
Dirksen Senate Office Bldg., Rm. SD-219
Washington, DC 20510-6200
Dear Chairman Carper, Ranking Member Cornyn, and honorable members of
the subcommittee on International Trade, Customs, and Global
Competitiveness:
Engine is a non-profit technology policy, research, and advocacy
organization that bridges the gap between policymakers and startups.
Engine works with government and a community of thousands of high-
technology, growth-oriented startups across the nation to support the
development of technology entrepreneurship. Lowering barriers to trade
unlocks markets for U.S. startups to expand, compete, and find success
and is a vital part of promoting domestic technology entrepreneurship.
Accordingly, we appreciate the committee holding a hearing on the
Opportunities and Challenges for Trade Policy in the Digital Economy.
The Internet and digitization of world economies has enabled startups
to reach markets beyond their borders. Through digital trade, startups
are able to further the outsized contributions they make to domestic
economic growth and job creation. And startups help others reach
markets abroad too, whether they be artists, farmers, manufacturers, or
others. As digital trade has grown,\1\ barriers to digital trade have
grown along with it. Startups encounter these barriers as they grow and
scale beyond U.S. borders to serve users and clients abroad, and such
barriers dictate where startups can feasibly reach users.\2\
---------------------------------------------------------------------------
\1\ See e.g., Table 3.1. U.S. Trade in ICT and Potentially ICT-
Enabled Services, by Type of Service, Bureau of Economic Analysis (July
7, 2022), https://apps.bea.gov/iTable/iTable.cfm
?reqid=62&step=9&isuri=1&6210=4#reqid=62&step=9&isuri=1&6210=4.
\2\ See e.g., Comments of Engine Advocacy Regarding Foreign Trade
Barriers to U.S. Exports for 2023 Reporting, Engine (October 28, 2022),
https://engine.is/s/2022-Transatlantic-Business-Statement-on-EU-US-
Data-Privacy-Framework.pdf.
Digital trade policies that lower trade barriers for U.S. businesses
face criticism from policymakers \3\ and others \4\ that claim that
forward-thinking digital trade policies only serve large incumbent
companies. Reducing barriers to digital trade helps all U.S.
businesses, including ``big tech,'' but it arguably stands to help
startups the most. Take, for instance, the invalidation of Privacy
Shield in 2020 created barriers to cross-border data transfers between
the U.S. and Europe. This impacted all transatlantic businesses, but
large companies were able to turn to other methods for transferring
data, like Standard Contractual Clauses, while startups faced more
existential business disruptions, increased costs, and lost clients.\5\
Indeed, small businesses and startups comprised the overwhelming
majority of companies that relied on free flows of data through Privacy
Shield.\6\ Similarly, the EU's Digital Services Act will impact all
content-hosting companies operating or looking to operate in Europe.
Large U.S. technology companies will face significant new obligations
under the law, but none of them are likely to exit the EU market or
significantly revise plans to operate there. U.S. startups on the other
hand will encounter elevated barriers to entering the EU market,
significant new obligations, and compliance costs.\7\ U.S. policymakers
have intervened in both of these cases to try to reach solutions with
their EU counterparts.\8\ This work advances the interests of U.S.
startups, and should not be foregone merely because it also helps or is
supported by ``big tech.''
---------------------------------------------------------------------------
\3\ See e.g., Hearing on Opportunities and Challenges for Trade
Policy in the Digital Economy: Hearing Before the Subcommittee on
International Trade, Customs, and Global Competitiveness, 117th
Congress (2022) (remarks of Senator Warren).
\4\ E.g., ``Digital Trade'' Doublespeak: Big Tech's Hijack of Trade
Lingo to Attack Anti-Monopoly and Competition Policies, Rethink Trade
(November 2, 2022), https://rethinktrade.org/reports/digital-trade-
doublespeak-big-techs-hijack-of-trade-lingo-to-attack-anti-monopoly-
and-competition-policies/.
\5\ See e.g., Sean Davis, New Transatlantic Data Deal Can Reopen EU
Opportunities for Startups, Engine (April 20, 2022), https://
engineadvocacyfoundation.medium.com/new-transatlantic-data-deal-can-
reopen-eu-opportunities-for-startups-4a25e454572f; #StartupsEverywhere
profile: Mikel Carmenes Cavia, Co-Founder and VP of Engineering,
Onfleet, Engine (May 7, 2021), https://www.engine.is/news/
startupseverywhere-sanfrancisco-ca-onfleet.
\6\ See generally, Privacy Shield Participants, https://
www.privacyshield.gov/list.
\7\ Lauren Koop, The EU's Digital Services Act is one step closer
to becoming law. How will it impact U.S. startups?, Engine (July 28,
2022), https://engineadvocacyfoundation.medium.
com/the-eus-digital-services-act-is-one-step-closer-to-becoming-law-
how-will-it-impact-u-s-startups
-7be702180582; Daphne Keller, The EU's new Digital Services Act and the
Rest of the World, Verfassungsblog (November 7, 2022), https://
verfassungsblog.de/dsa-rest-of-world/ (Explaining the comparative
impacts of the DSA on small entities: ``The other predictable global
harm will be to competition. The DSA burdens even very small platforms
with obligations that today's incumbents never shouldered, or else took
on only much later in their development. Facebook, for example, first
released a transparency report in 2013, when it was worth $139 billion.
It first allowed users to appeal removals of photos, videos, and posts
(but not comments) in 2018, when the company was worth $374 billion and
had some 35,000 employees. Newer market entrants will take on similar
obligations at a much earlier stage: once they reach just =10 million
and 50 employees.'').
\8\ See, e.g., FACT SHEET: President Biden Signs Executive Order to
Implement the European Union-U.S. Data Privacy Framework, White House
(October 7, 2022), https://www.whitehouse.
gov/briefing-room/statements-releases/2022/10/07/fact-sheet-president-
biden-signs-executive-order-to-implement-the-european-union-u-s-data-
privacy-framework/ (on resolving transatlantic data transfer issues);
Chamber of Progress (@ProgressChamber), Twitter (December 8, 2021),
(Remarks of Sec. Raimondo on the DSA: ``We have serious concerns that
these proposals will disproportionately impact U.S.-based tech firms
and their ability to adequately serve EU customers and uphold security
and privacy standards.'').
Smart digital trade policy that promotes a free, open, and global
Internet is needed to lower and keep low barriers to trade for
startups. The recent U.S.-Mexico-Canada and U.S.-Japan Agreements
enshrined commonsense digital frameworks and can provide a template for
smart digital trade policy and future trade agreements. Inspired by
these agreements, digital trade policy should embrace the following
principles, which can support the success of U.S. startups looking to
---------------------------------------------------------------------------
expand into foreign markets and engage customers abroad:
Provide proportionate, tailored, and certain intermediary liability
frameworks.
Balanced intermediary liability frameworks, like those found in
the U.S., provide the legal certainty needed for startups with
business models that rely on user content--whether it's
comments, photos, reviews, etc.--to grow and thrive. Around the
world, however, common methods for governing intermediaries are
taking root that undermine a startup-friendly environment and
create new uncertainties and costs for U.S. companies. Laws
that require the appointment of local representatives, impose
tight content takedown timelines, require automated filtering,
require the removal of content that is not otherwise illegal,
and threaten heavy fines create barriers to entry for startups
and reduce the number of foreign markets available to them.
Facilitate cross-border data flows.
The Internet allows startups to access foreign markets with
little additional investment. Conversely, policies that
restrict how and when data can be transferred across borders
erect barriers to trade and increase costs that startups with
limited resources have difficulty overcoming compared to their
larger rivals.
Foster innovation and market access.
Extraterritorial regulations adopted in other jurisdictions,
including around data privacy and emerging technologies, can
limit innovation opportunities and market access for American
startups. Because they often apply any time a business
encounters a user in or from that jurisdiction, startups with
relatively few users there are likely to forgo serving that
jurisdiction because of the regulatory structure. U.S.
policymakers should work through the appropriate fora to ensure
American startups encounter a consistent and level playing
field.
Avoid technology sector-specific levies.
While startups are rarely subject to digital services taxes
(DSTs) themselves, they rely on the services of larger
companies who are, to build their products and reach customers.
DSTs increase the price of these services, putting startups at
a disadvantage in jurisdictions with them. Working through
multinational fora to reach a global solution promises the best
step toward a uniform tax environment.
Prohibit duties on digital transactions.
The WTO moratorium on e-commerce is critical to fostering
digital trade, and it is especially important for startups.
Since 1998, member countries have agreed to not impose customs
duties on electronic transmissions, but some countries have
recently expressed interest in limiting or ending the
moratorium.
In addition to these principles, there are other affirmative steps that
U.S. policymakers can and should take to support startups and small
businesses as they look to trade internationally. Witnesses highlighted
several examples in response to questioning from Chairman Carper
regarding such positive steps available.\9\ Improved commercial guides
and other trade resources from the Commerce Department would be helpful
for startups. Startups turn to these and other government trading
resources, but often find them insufficient.\10\ Helping to increase
the adoption of digital tools for small businesses could also help
startups while expanding trade. Technology startups often already make
use of digital tools to run their businesses and facilitate
international trade, but since many startups offer digital services
themselves, incenting increased adoption of such tools will help expand
markets for startups. Finally, most government trade resources
available for small businesses are focused toward exporters of physical
goods. Many technology startups export software or services digitally,
and would benefit from these government resources, like commercial
guides, consulting services, and grant assistance,\11\ being expanded
to more directly support them.
---------------------------------------------------------------------------
\9\ E.g., Hearing on Opportunities and Challenges for Trade Policy
in the Digital Economy: Hearing Before the Subcommittee on
International Trade, Customs, and Global Competitiveness, 117th
Congress (2022) (remarks of Christine Bliss).
\10\ See e.g., #StartupsEverywhere Profile: Jeff Wigh, Founder and
CEO, Bryght Labs, Engine (February 4, 2022), https://www.engine.is/
news/startupseverywhere-overlandpark-ks-bryghtlabs (remarking about
some resources available via Trade.gov, how they apply to startups like
his, and how they might be improved).
\11\ E.g., the State Trade Expansion Program (STEP), https://
www.sba.gov/funding-programs/grants/state-trade-expansion-program-step
(STEP needs to be reauthorized for FY 2023-26).
Engine appreciates the opportunity to submit this statement for the
hearing record and the Committee's attention to digital trade issues
important to startups. We look forward to being a resource for the
---------------------------------------------------------------------------
committee on these and other issues in the future.
Sincerely,
Engine Advocacy
______
PEN America
1100 13th Street, NW, Suite 800
Washington, DC 20005
PEN America stands at the intersection of literature and human rights
to protect free expression in the United States and around the globe.
Our PEN Charter calls us to uphold ``the principle of unhampered
transmission of thought within each nation and between all nations.''
We champion the freedom to write and work to unite writers and their
allies to celebrate creative expression and defend the liberties that
make it possible. It is under these principles that we see coerced
censorship as a key barrier to trade in the digital economy.
PEN America defines ``coerced censorship'' as the direct or indirect
governmental suppression of digital content, in whole or in part, due
to its perceived political or societal offense, consistent with
international law, with special attention to Article 19 of the
International Covenant on Civil and Political Rights. The term shall
not be construed to include government actions related to data privacy,
antitrust enforcement, or anti-harassment orders. This definition seeks
to precisely target efforts against extraterritorial censorship, while
allowing for commonsense regulation of technology companies by our
democratic allies.
As the long arm of authoritarianism grows, freedom of expression is
stifled in every part of the world. Beijing's efforts are especially
worrying due to its economic reach and marked intolerance of dissent.
Censorship can be both overt and behind-the-scenes, with Chinese
government influence creeping into LinkedIn profiles,\1\ Zoom
meetings,\2\ streaming services,\3\ institutions of higher
education,\4\ and publishing houses.\5\
---------------------------------------------------------------------------
\1\ https://pen.org/press-release/pen-america-decries-linkedins-
apparent-state-influenced-censorship/.
\2\ https://pen.org/press-release/pen-america-condemns-shuttering-
of-chinese-activists-zoom-account/.
\3\ https://pen.org/press-release/pen-america-denounces-disneys-
removal-of-simpsons-episode/.
\4\ https://pen.org/censorship-free-speech-issues-china/.
\5\ https://foreignpolicy.com/2021/10/26/chinese-censorship-enes-
kanter-celtics-browder-is-going-global/.
As PEN America documented in its landmark report Made in Hollywood,
Censored by Beijing,\6\ even one of our country's most iconic cultural
industries increasingly self-censors in response to pressure, either
direct or indirect, from the Chinese Communist Party. Increasingly,
Beijing's economic clout has allowed it to insist that others comply
with its censorship restrictions as a prerequisite to doing business
with or in the country. These attempts to silence critical voices and
stories must not go unanswered and we urge the inclusion of coerced
censorship, and its definition, when discussing and legislating trade.
---------------------------------------------------------------------------
\6\ https://pen.org/report/made-in-hollywood-censored-by-beijing/.
If you have any questions please reach out to our Managing Director in
Washington, Nadine Farid Johnson ([email protected]) and our Senior
---------------------------------------------------------------------------
Manager for Legislative Affairs, Laura Schroeder ([email protected]).
______
PILOT Inc.
C/O NeueHouse
110 East 25th Street
New York, New York 10010
December 14, 2022
U.S. Senate
Committee on Finance
Subcommittee on International Trade, Customs, and Global
Competitiveness
Dirksen Senate Office Bldg., Rm. SD-219
Washington, DC 20510-6200
Dear Chairman Carper, Ranking Member Cornyn, and honorable members of
the subcommittee on International Trade, Customs, and Global
Competitiveness:
PILOT is a New York City-based, Delaware-registered startup that
provides tech-driven virtual group coaching programs to companies that
are easy to implement, affordable, and get good results. We employ over
50 individuals throughout the U.S. that are passionate about helping to
empower each employee to truly own their career and actively shape
their experience at work and our product has won many awards including
Top HR Product of the Year. We are proud to be one of a small handful
of certified LGBTQ-owned businesses providing enterprise Software as a
Service (SaaS). Our customers include some of the largest companies in
the world and we serve their employees--our end users--on five
continents. From day one, PILOT was built to be a global company with
global aspirations. That is why we appreciate the committee's attention
to issues of digital trade and global competitiveness that are
important to startups like PILOT.
To help startups like PILOT be competitive abroad, policymakers must
pursue digital trade policies that lower barriers to entry, facilitate
cross-border transfers of data, and promote uniform regulatory
environments across jurisdictions. Data localization policies and
regulatory regimes--especially around data protection and privacy--that
vary from jurisdiction to jurisdiction increase the costs of serving
customers and their employees in locations with these policies.
Compliance costs are not insignificant, especially for startups. I
founded PILOT using my life's savings and we have bootstrapped since
then, growing the business through the revenue we generate--we have not
taken outside investment.
PILOT cares deeply about our users and keeping their data protected,
and we have made significant investments to that end. Even with this
focus, we must devote our limited resources to understanding our
obligations and responding appropriately, especially when we serve
customers abroad. High compliance costs amount to a transaction cost--a
tax on doing business--that elevates barriers to operating in certain
markets, without, in our view, any real tangible benefit to end users
or our customers. Confusing and complex regulatory structures benefit
large businesses who have the expertise and resources to comply and can
amortize those costs across a huge base of business, while penalizing
small innovative firms like PILOT, depressing economic growth. These
costs can amount to 10 percent or more of the value of a contract.
The opportunity costs of compliance are not one to one. The resources
devoted toward compliance that does little productive for our business
could instead go toward additional innovation and job creation if those
costs were reduced through smart digital trade policy. Savings from
rationalized compliance policies free up dollars I can invest back into
the business that helps us grow, in areas like marketing, sales, and
R&D. That means we create more high-quality jobs for Americans in
communities across the country, and generate more tax revenue for
governments--all while adhering to our thoughtful and industry best-
practices around data privacy and IT security, protecting our
customer's data and our reputation.
The regulatory environment and resulting compliance costs impact our
competitiveness as a startup in multiple ways. Larger competitors are
better positioned to absorb these compliance costs. Cumbersome
regulatory environments also impact our prospective customers, who
respond by reducing the amount of vendors they have. That means they
often consolidate their supplier base to work with a few large
companies and startups like us lose out on critical business
opportunities. And finally as a result of regulations abroad,
prospective customers in other countries may instead turn to a domestic
competitor who can offer a lower price or appear to reduce regulatory
risk.
Smart digital trade policy informed by the real-world experiences of
startups like PILOT is critical to bolster the global competitiveness
of U.S. startups. We appreciate the committee's attention to these
issues and hope that our perspective will prove helpful as you work
with your colleagues across government in forming U.S. trade policy for
the digital economy. Rationalizing these policies is critical to
``unlock'' America's renowned startup ecosystem, further facilitating
the deployment of software and services around the world.
Sincerely,
Ben Brooks
Founder and CEO
______
Public Citizen's Global Trade Watch
215 Pennsylvania Ave., SE
Washington, DC 20003
https://www.citizen.org/
(202) 454-5107
Statement of Melinda St. Louis, Director
Introduction
Public Citizen welcomes the opportunity to provide a written statement
for the record for the Subcommittee Hearing: Opportunities and
Challenges for Trade Policy in the Digital Economy. Public Citizen is a
nonprofit consumer advocacy organization with more than 500,000 members
and supporters. A mission of our Global Trade Watch division is to
ensure that in this era of globalization, a majority can enjoy economic
security; a clean environment; safe food, medicines and products;
access to quality affordable services; and the exercise of democratic
decision-making about the matters that affect their lives. We have
conducted extensive analysis of U.S. trade and investment agreements
and their outcomes, starting in 1991 during the initial North American
Free Trade Agreement (NAFTA) negotiations. More recently, Public
Citizen has been a leader in working to hold Big Tech accountable in
the United States as well as identifying the dangers of so-called
``digital trade'' rules with respect to efforts to regulate the tech
industry around the globe.
Over the past 3 decades, the Internet has grown to encompass, or at
least touch on, nearly all aspects of economic and social life around
the world. During this time, a small number of companies (Big Tech)
have emerged as the dominant architects of the global digital system,
shaping how content is circulated, services are performed, and
infrastructures are designed.
Lax domestic and global regulation has allowed Big Tech to enjoy broad
and unfettered freedom to design, implement, and exploit e-commerce and
digital systems and technologies. While new digital technologies,
products, and systems have brought important benefits to people across
the planet, the lack of oversight and regulation has enabled Big Tech
to invade people's privacy, design and deploy a system of mass
corporate surveillance, leverage its economic might to diminish
competitors, discriminate (typically unintentionally) against
vulnerable populations, and concentrate enormous political and economic
power. The rise of Big Tech has inarguably contributed to a surge in
wealth and income inequality within and between countries.
The Biden administration and Congress are grappling with how best to
regulate Big Tech to protect consumer privacy, to ensure adequate
competition, and hold companies accountable for discriminatory
practices. Yet, behind closed doors in international trade
negotiations, such as the U.S.-Mexico-Canada Agreement (USMCA) and the
Japan-U.S. digital agreement, Big Tech has pushed digital trade terms
that limit governments' ability to regulate their business practices.
Big Tech continues to insert its deregulatory agenda \1\ in a patchwork
of new Biden administration trade initiatives, including the Indo-
Pacific Economic Framework (IPEF), U.S.-EU Trade and Technology Council
(TTC), and the U.S.-Kenya Strategic Trade and Investment Partnership
(STIP), as well as ongoing discussions in the World Trade
Organization's (WTO) E-commerce ``Joint Statement Initiative.'' They
seek binding rules to:
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\1\ See Sarah Grace Spurgin, ``Public Submissions to U.S.
Government Reveal Corporate Wishlist for IPEF: More Power at Our
Expense,'' Public Citizen, published May 20, 2022, accessed December
13, 2022.
Limit the ability of governments to regulate where Big Tech
firms send and store our data;
Undermine investigation of discriminatory source code and
algorithms, intrusive surveillance practices, and violent incitement
online via prohibitions on technology transfer requirements and ``trade
secrets'' protections;
Shield online platforms from corporate accountability via overly
broad liability waivers similar to the controversial Section 230 of the
1996 Communications Decency Act;\2\
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\2\ Anna Edgerton, ``Tech Liability Shield Has No Place in Trade
Deals, Groups Say,'' Bloomberg Law, published May 27, 2021, accessed
December 13, 2022.
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Manipulate ``trade'' tools of ``market access,'' ``trade
discrimination'' and ``conditions for business'' to exploit workers in
the gig economy; and
Protect monopolies and promote further consolidation by banning
certain pro-competition policies.
These ``digital trade'' terms are not focused on remedying actual
problems related to the online sale of imported goods, such as tariff
evasion and product safety, but instead seek to undermine the stronger
Big Tech accountability rules of many of our trading partners and tie
U.S. policymakers' hands for future regulatory efforts. More than 50
national organizations representing labor, civil rights, consumer, and
other constituencies oppose these harmful ``digital trade''
provisions.\3\
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\3\ Trade Justice Education Fund, ``53 Organizations Warn About
Harmful Provisions in `Digital Trade' Pacts,'' Press release, November
2, 2021.
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USTR Katherine Tai has articulated a more forward-thinking vision:
Our approach to digital trade policy must be grounded in how it
affects our people and our workers. We must remember that
people and workers are wage earners, as well as consumers. They
are more than page views, clicks, and subjects of surveillance.
They are content creators, gig workers, innovators and
inventors, and small business entrepreneurs. This means they
have rights that must be protected--both by government policy
and through arrangements with other governments.\4\
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\4\ Amb. Tai, ``Remarks of Ambassador Katherine Tai on Digital
Trade at the Georgetown University Law Center Virtual Conference,''
USTR Press Office, November 3, 2021.
Congress should monitor ongoing trade negotiations to ensure that any
``digital trade'' talks advance this vision and do not replicate
problematic provisions pushed by Big Tech that were included in the
USMCA.\5\ Trade agreement rules on digital trade should not shrink the
policy space of U.S. regulators and the U.S. Congress.
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\5\ See Global Trade Watch, ``Analysis of the NAFTA 2.0 Text
Relative to the Essential Changes We Have Demanded to Stop NAFTA's
Ongoing Damage,'' Public Citizen website, accessed December 13, 2022.
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Limiting Government Regulation of Data Flows
Big Tech demands for ``free flow of data'' refers to binding rules to
limit the ability of governments to regulate where Big Tech firms send
and store our data. That would mean high-tech giants like Amazon,
Google, and Facebook would be free to transfer our data to any other
country. People's every move on the Internet and via cell phones is
increasingly tracked, stored, bought and sold--as are interactions with
the growing ``Internet of things,'' that many people may not even be
aware are tracking them nor from which they have a feasible way to opt
out.
``Digital trade'' terms that ban data localization requirements would
significantly undermine the ability of governments to secure their
citizens' data against unauthorized or unlawful exposure or processing,
or against cyber-crime, accidental loss, destruction or damage, as
these rules would mean consumers have no guarantee that their data
would be protected where the data were transferred--even if domestic
laws require such protections. Further, countries that have superior
privacy laws could see their data protection rules undermined, and U.S.
congressional efforts to enact privacy rules could be thwarted.
Concepts prohibiting limits on data flows appear in trade negotiations
everywhere from the Trans-Pacific Partnership (TPP) to the Digital
Economic Partnership Agreement, to the WTO ``e-commerce'' talks, and
governments are signing up to these terms without understanding the
implications for their domestic policymaking. We urge adoption of the
precautionary principle when it comes to rules governing the storage of
data, and as such, we urge lawmakers to not cement a ban on data
localization requirements into binding law.
Limiting Algorithm and Source Code Transparency Requirements
Everyday decisions made by artificial intelligence (AI) components of
online platforms affect which individuals and communities can access
public and private services. AI uses emotion recognition, facial
analysis, and social scoring, often with the intent to materially
distort a person's behavior beyond their consciousness and exploit
vulnerabilities. Critical components of economic and social stability
like home loans, job postings, medical treatments, targeted ads, and
much, much more are influenced and determined by AI algorithms,
enabling modernized redlining. Governments are likewise increasingly
turning to these algorithms developed by private corporations for aid
with ``predictive policing'' and other surveillance functions.\6\
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\6\ Jane Chung, ``Racism In, Racism Out: A Primer on Algorithmic
Racism,'' Public Citizen report, accessed December 13, 2022.
It is clear that there is a huge need for a collaborative effort to
address this growing crisis, as demonstrated by the concept of the AI
Roadmap, a broad document produced by the U.S.-EU Trade and Technology
Council meant to operationalize trustworthy AI.\7\ However, in
negotiating the terms of such collaboration, the work carried out in
the name of ``digital trade'' should not lead to the lowest common
denominator of legal protections for consumers, and as it stands, the
AI Roadmap leaves room for unintended consequences with regard to
domestic regulation.\8\ Instead, all AI systems should comply with
mandatory rules that include, but are not limited to, transparency,
accountability, and fairness, as well as audits and impact assessments
that focus on discriminatory impact, statement of appropriate purpose,
and capability.
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\7\ Read the text of the AI Roadmap: https://digital-
strategy.ec.europa.eu/en/library/ttc-joint-roadmap-trustworthy-ai-and-
risk-management.
\8\ University of Maryland. (December 5, 2022). U.S. Department of
Commerce Roundtable for U.S. and European Stakeholders [Video].
YouTube, https://www.youtube.com/watch?v=MHH6
TmAwlEo.
But ``digital trade'' terms that require governments to provide trade
secret protections for source code and algorithms would limit
governments from accessing such information only to instances of known
violations of law. Congressional committees, scholars, and public
investigators would be barred from reviewing code and related data to
identify racist, sexist and other practices deserving of scrutiny and
correction. Rather than shield these ``trade secrets'' from public
scrutiny, continuous, independent oversight and transparency is key to
ensuring human and civil rights are maintained in the digital age.
Undermining Workers' Rights
Corporate surveillance of workers has reached new heights. Workers'
activity is being surveilled in and out of work, and their data is
being created, collated and sold by and to employers to make managerial
decisions. Managers are increasingly relying on source code-protected
algorithmic decision systems, allowing employers to sidestep
accountability and limit the ability of workers and unions to resist
unfair labor practices, discriminatory hiring and firing, and further
intrusive surveillance and monitoring.\9\ Data stored by employers is
personal and sensitive, including real-time and past physical
locations, health information, and more, so we must not make it harder
for countries to protect that data via bans on data localization.
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\9\ Duncan McCann, ``e-Commerce: Free Trade Agreements, Digital
Chapters and the Impact on Labour,'' International Trade Union
Confederation, published April 30, 2022, accessed December 13, 2022.
Further, there is a false notion that workers providing services online
or in the gig economy are somehow different from those in their brick-
and-mortar counterparts, and so domestic policies that generally apply
to protect the rights of workers do not apply to them. Trade terms such
as ``discrimination'' and ``market access'' may serve legitimate
business concerns, but they can be manipulated by Big Tech companies to
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disguise attempts to avoid worker protection regulations altogether.
For instance, regulations that require large ride-sharing companies to
meet driver hours-of-service rules or to contribute to drivers' social
security have been illegal ``trade barriers.'' Big Tech corporations
allege such industry standard regulations to be applying ``burdensome
measures'' that impose ``unilateral regulations or taxes that deviate
from global norms and single out digital platforms for special
treatment, often with the intention of giving domestic companies an
advantage.''\10\ Similarly, government action that shuts down
operations of a company in their territory due to violations of local
labor laws have been characterized by Big Tech companies as illegal
limitations to ``market access.''
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\10\ Internet Association, ``Comments Regarding International
Internet Priorities,'' Comment Submission to the National
Telecommunications and Information Administration, published July 20,
2018, accessed December 13, 2022.
Additionally, firms like Google and others \11\ are seeking trade terms
that would bar governments from requiring a local representative or
office as a condition for doing business, which could make enforcement
of local labor laws that much more difficult.\12\ In the case of unsafe
labor practices, if a foreign-owned company is not required to have a
local representative, the authorities' only option would be to enforce
labor laws against the gig worker themselves, not their employer. Local
legal entities therefore are extremely useful for holding corporations
accountable to their workers, consumers, and more.
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\11\ Google, ``Comments Regarding the Indo-Pacific Economic
Framework, Comment on FR Doc # 2022-05206,'' International Trade
Administration, published April 11, 2022, accessed December 13, 2022.
\12\ Duncan McCann, ``e-Commerce: Free Trade Agreements, Digital
Chapters and the Impact on Labour,'' International Trade Union
Confederation, published April 30, 2022, accessed December 13, 2022.
No trade or other international commercial agreement should limit
countries' policies that condition permission for an entity to operate
on compliance with labor, health and safety, civil rights, competition,
consumer and other policies that apply across an economy or to a
sector.
Shielding Online Platforms from Corporate Accountability
Some pacts with ``digital trade'' rules require governments to enact
liability shields for online firms that allow them to evade
responsibility for discriminatory conduct, online racial incitement,
and other civil rights violations.
The rules that govern the Internet are still hotly debated,
particularly Section 230 of the 1996 Communications Decency Act.\13\
Section 230 states that no provider or user of an interactive computer
service shall be treated as the publisher or speaker of any information
provided by another information content provider. Online platforms use
this law to claim they are not liable for content posted by third
parties; for example, fraudulent or defamatory posts on Facebook. Some
experts argue this is a core component of free speech online, while
others say it mainly serves Big Tech companies to avoid liability for
negligence.
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\13\ Anna Edgerton, ``Tech Liability Shield Has No Place in Trade
Deals, Groups Say,'' Bloomberg Law, published May 27, 2021, accessed
December 13, 2022.
There is vigorous opposition to and support for Section 230 by
Democrats and Republicans. Such contentious, still-debated issues
should not be locked in via a trade agreement, but should be decided in
an open and democratic forum. Policymakers must have flexibility to
address concerns with Section 230, not have the expanding digital
policy space preempted by international trade agreements. Using trade
pacts to prevent signatory countries from determining the best ways to
protect the public interest online is unacceptable.
Undermining Antitrust Regulation
In October 2020, the House Judiciary Committee's Subcommittee on
Antitrust, Commercial, and Administrative Law published a report on the
monopolistic practices of the four largest tech firms: Apple, Amazon,
Alphabet, and Facebook (now Meta).\14\ The report concluded that the
dominant platforms have:
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\14\ Rep. Jerrold Nadler, Rep. David Cicilline, ``Investigation of
Competition in Digital Markets: Majority Staff Report and
Recommendations,'' Subcommittee on Antitrust, Commercial, and
Administrative Law of the Committee on the Judiciary of the House of
Representatives, October 2020, accessed December 13, 2022.
Consolidated segments of the digital marketplace and abused
monopoly power by advantaging their own products and services on their
platforms over independent or smaller ones;
Acquired hundreds of companies within the past decade, including
purchasing potential competitors and shutting down or discontinuing
services to foreclose the market; and
Developed and acted on a financial incentive to abuse their
significant and durable market power.\15\
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\15\ Ibid.
Big Tech companies seek ``digital trade'' terms that ban limits on
size, services offered, or break-ups. As corporations and conglomerates
exert increasing control over important social functions, governments
must have the authority to combat anti-competitive business practices,
place limits on corporate mergers, and break up monopolies where
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warranted.
In further manipulation of trade rules to undermine worker and consumer
safety, there is a concerning trend of encouraging U.S. trade officials
to consider other countries' enforcement of their domestic laws to be
``discriminatory'' if such laws affect U.S. Big Tech companies more
than the tech companies from other countries. But sometimes laws of
general application addressing market concentration might impact U.S.
firms because they have monopolized the industry. For example, Apple
and Google are pushing U.S. trade officials to challenge a Korean
antitrust law to end anti-competitive App Store practices, claiming the
law is ``discriminatory'' because, due to their monopoly practices, it
would affect them more than other businesses.\16\
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\16\ David McCabe, Jin Yu Young, ``Apple and Google's Fight in
Seoul Tests Biden in Washington,'' New York Times, published August 23,
2021, accessed December 13, 2022.
The United States federal government has a long history of intervening
when mergers and consolidations have reduced competition to protect
workers' safety, consumers' rights, and economic health. Manipulating
trade rules for the consolidation of corporate power does not fit into
the Biden administration's new approach to trade policy that empowers
workers, defends their rights, and stops the global race-to-the-bottom.
Therefore, ``digital trade'' rules must not include terms that forbid
countries from establishing or maintaining policies that limit the size
or range of services offered by companies, limit the legal structures
under which they may be required to operate, nor otherwise restrict the
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regulation or break-up of Big Tech monopolies.
In addition to the efforts to include binding standards in future trade
agreements, U.S.-based Big Tech companies are seeking assistance from
the U.S. government in their quest to undermine robust consumer and
social protections in other nations.\17\ These efforts can be seen in
the annual USTR National Trade Estimates report that identifies other
countries' laws that Big Tech firms (among others) don't like.\18\ In
the Biden administration, Big Tech has made the greatest inroads with
the U.S. Commerce Department, which has intervened repeatedly--and with
deleterious impact--in the EU's adoption of a new digital services
regime.\19\ Congress should oppose inappropriate U.S. efforts to
undermine these kinds of regulatory frameworks, which the United States
should in fact be emulating.
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\17\ See Letter from the Transatlantic Consumer Dialogue to Speaker
Pelosi and Leader Schumer, dated June 9, 2022.
\18\ See United States Trade Representative, ``2022 National Trade
Estimate Report on Foreign Trade Barriers,'' published March 31, 2022,
accessed December 13, 2022.
\19\ Samuel Stolton, ``Raimondo: U.S. has `serious concerns' about
EU digital rules,'' PoliticoPro, published December 8, 2021, accessed
December 13, 2022.
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Need for Pro-Consumer Rules
There are some legitimate international trade concerns associated with
e-commerce and the broader digital economy that should be considered in
IPEF or other trade negotiations. If digital trade rules are to be
included, they should instead ensure that goods purchased online across
borders meet labor, environmental and consumer safety standards,
including by raising de minimis levels so that, for instance, the two
million packages arriving from China to the U.S. daily to fulfill
online orders can no longer evade U.S. inspection regimes.\20\ They
should prevent corporate misclassification so that so-called ``digital
platforms'' involved in transportation, hospitality, healthcare,
retail, education and other industries cannot evade labor, consumer and
other regulations imposed on ``brick-and-mortar'' businesses. To combat
the growing high-tech discrimination in artificial intelligence,
international trade rules should guarantee access to source codes and
algorithms by congressional committees, government agencies, academic
scholars, labor unions and nongovernmental organizations. Any rules
should also introduce corporate liability for personal data collected
via computers, cell phones and the ``Internet of Things'' without
consumers' explicit, informed permission, shared or sold without their
permission, and/or stolen.
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\20\ Rep. Earl Blumenaur (D-OR), ``Chairman Blumenauer Unveils New
Legislation to Fix Import Loophole, Level Playing Field, and Boost
Oversight,'' Congressional Press Release, January 18, 2022.
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Transparency and Oversight
Congress and the public must monitor, investigate, and publicly debate
the ``digital trade'' terms that may be sought by Big Tech firms in the
context of the IPEF, U.S.-Kenya STIP or other trade negotiations, to
ensure that they do not become tools for weakening, preventing, or
dismantling labor, consumer, or other public interest policies in the
digital sphere. In order for Congress to exercise its constitutional
authority over the regulation of foreign commerce, Fast Track Trade
Promotion Authority (TPA) must not be renewed. TPA is an extreme
delegation of Congress' constitutional trade authority. It empowers a
president to choose prospective trade partners, negotiate deals and
sign a trade pact all before Congress has a vote on any element of it.
TPA also empowers the executive branch to control Congress' voting
schedule, and both the House and Senate are required to vote on a trade
agreement's implementing legislation within 90 days of the White House
submitting it. No floor amendments are allowed and debate is limited,
effectively eliminating the transparency, accountability, and oversight
necessary for the far-reaching trade and investment agreements that the
administration is negotiating.
Instead, Congress should insist that the U.S. Trade Representative and
the Department of Commerce replace the past secretive trade negotiation
process with an on-the-record public process, including public
hearings, to formulate U.S. positions and obtain comment on draft and
final U.S. text proposals. U.S.-proposed texts and draft consolidated
texts after each negotiating session must be made public. Strict
conflict of interest rules must be enforced. Only by issuing detailed
goals and making draft texts available will the American public know in
whose interest the negotiations are being conducted.
Conclusion
As governments worldwide work to address fundamental issues relating to
digital governance and build a framework for the future, these
important policy debates and decisions that will shape every facet of
our lives must not be constrained, undermined, or preempted via
``trade'' pacts or policies. To achieve President Biden's worker-
centered approach to trade that will complement the administration's
efforts to build a more resilient economy, its ``digital trade'' agenda
must not undermine domestic policy space on critical emerging issues
like gig economy worker protections, discrimination and algorithm
transparency, corporate liability, and consumer privacy, but instead
should be structured to raise the floor to help ensure that human and
civil rights are protected at home and around the globe.
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