TechWonk Blog - The U.S. Must Prioritize Digital Trade in the Indo-Pacific

As the Biden-Harris Administration focuses on restoring ties with partners in the Indo-Pacific, the U.S. must take concrete action in an area that defines how all international commerce is conducted today – digital trade. Since the Trump-Pence Administration’s withdrawal from the Trans-Pacific Partnership (now Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP)), Indo-Pacific countries have moved forward with digital trade agreements of their own, advancing the rules of the road for the global economy without the U.S. at the table. These actions, coupled with increased reliance on information and communications technology (ICT) goods and services as a result of the pandemic, have intensified the need for U.S. leadership on digital trade policy issues.

As ITI outlined in a letter to U.S. Trade Representative Tai, advancing digital trade rules in the Indo-Pacific will stimulate U.S. economic growth, strengthen our relationships with Indo-Pacific allies and partners, and defend against rising digital protectionism and authoritarianism from the Chinese government and other actors. We encourage the Biden Administration to seize this opportunity and outline a robust digital trade agenda for this pivotal region.

Following October’s Association of Southeast Asian Nations (ASEAN)-led East Asia Summit, President Biden announced the development of an Indo-Pacific economic framework, which the administration says will deepen cooperation on the digital economy and environmental technology. While the administration’s plans for a framework are a welcome signal of U.S. interest in the Indo-Pacific, it’s not clear whether such a framework would contain necessary, strong provisions to effectively govern international digital trade and commerce. Given the challenges in the region, it’s critical that any framework include policies that support free cross-border data flows, prohibit data localization, enhance privacy protections, and lower or eliminate customs duties on ICT goods and services.

Bold, impactful engagement on these issues directly supports the Biden Administration’s aims to prioritize workers, inclusive access to vital goods and services, international development, and a free and open internet. For example, when services trade restrictions are eased, micro-, small- and medium-sized enterprises (MSMEs) are the first to see gains.[1] While digital trade has created immense new opportunities for MSMEs to directly engage with customers in new markets, high costs to entry stemming from divergent regulation of services disproportionately harm MSMEs, and in many instances may simply be prohibitive. Promoting free data flows across borders enables the digital economy to serve as an engine of growth for the U.S. economy, allowing for greater trade openness and more transparent data policies to protect U.S. citizens.[2] Such policies would guard against the rise in digital protectionism, which has spread rapidly throughout the pandemic and affects the ability of U.S. companies to compete across borders and create jobs at home.

Asia-Pacific partners also share a common objective of empowering their Small and Medium-Sized Enterprises (SMEs) and providing them with greater access to global markets. U.S. digital trade engagement in the region would provide an opportunity to pioneer new provisions to enable equitable gains. As U.S. officials have consistently focused on promoting worker-centric policies, a digital upskilling program could be one area that provides greater resources for Indo-Pacific-based SMEs while simultaneously modernizing the U.S. workforce.

Further, for the Indo-Pacific economic framework to effectively tackle challenging digital trade issues, the U.S. must aim to advance rules, such as those in the digital trade chapter of the U.S.-Mexico-Canada Agreement (USMCA), to counteract the growing range of restrictions and protectionist policies in some of the United States’ largest trading partners. The framework should build on promising regional initiatives, including the Australia-Singapore Digital Economy Agreement, the Digital Economy Partnership Agreement (DEPA), and most recently, the UK-Australia Free Trade Agreement, which expand digital trade rules to serve their domestic communities and to increase their global competitiveness.

In addition to the proposed framework, a digital trade deal between the U.S. and Asia-Pacific partners would also provide the opportunity for the U.S. to strengthen its relations in ASEAN. As part of its increased economic initiatives in the Indo-Pacific, the Biden Administration should pursue agreements with binding commitments on digital trade while recognizing the bloc’s significance as both a hub of vital economic trade partners and a rule-maker in its own right. A more traditional digital trade agreement would enable the U.S. to secure those binding commitments, while serving as one of the most effective foreign policy tools for the administration to balance against China’s economic, diplomatic, and strategic influence. But, if the U.S. continues to lurk around the edges without initiating negotiations and enshrining strong digital trade norms, Beijing will certainly fill the void in discussions on trade, investment, and digital infrastructure – as China’s stated intent to apply to join CPTPP and DEPA makes clear.

As it advances its vision of an Indo-Pacific economic framework in 2022, the United States should prioritize strong, binding commitments for its trading partners on digital trade issues. Doing so makes sense for U.S. workers and U.S. strategic interests, and could serve as a meaningful pillar in a foreign policy that works for the middle class and champions international development. ITI stands ready to serve as a resource and partner in those discussions.