Digital Protectionism? Or Label the U.S. Government Uses to Criticize Policy It Doesn’t Like?

Susan Ariel Aaronson is Research professor of International Affairs at George Washington University, and GWU Cross-Disciplinary Fellow and the Carvalho Fellow at the Government Accountability Project.

Today, information is currency; it facilitates productivity, exchange, technology and trade. Information is also the building block of the digital economy. Although many countries are gaining expertise and market share the United States dominates both the global digital economy and digital trade.

The United States has conflicting objectives regarding the digital economy. On one hand, it wants to encourage a vibrant global Internet with few barriers to entry. On the other, the United States wants to preserve its Internet dominance, which is clearly declining as China, India, Indonesia and others develop their digital prowess and bring more people online. Not surprisingly, more than any other nation, the United States has made fighting digital protectionism an essential element of its trade and national security strategy. However, digital protectionism is hard to define and perhaps even harder to contest.

Most countries have a wide range of legitimate reasons why they may seek to limit cross-border information flows. For example, many want to develop an indigenous tech sector, requiring them to develop an effective enabling environment that includes competition, digital literacy, and infrastructure policies. In this pursuit, officials might sometimes take steps that discriminate against foreign market actors and in so doing distort trade, even though this may not be their original intent. Policymakers also want to encourage the rule of law online and prevent unlawful behavior such as the dissemination of hate speech or child pornography, fraud, identity theft, cyberattacks and money laundering. Here again, these policies may be necessary to achieve important domestic objectives, yet they may discriminate against foreign firms.

While many U.S. officials understand that countries often have legitimate reasons to take these steps, the United States closely monitors such actions and policies and increasingly labels some of these policies “digital protectionism.” The U.S. International Trade Commission (USITC) defines digital protectionism as barriers or impediments to digital trade, including censorship, filtering, localization measures and regulations to protect privacy. In 2014, at the behest of Congress, the USITC examined global use of trade-distorting strategies and found that forty-nine nations have adopted “digital protectionist” policies such as censorship, filtering, localization measures and regulations in the name of privacy and cyber stability.

Meanwhile, many governments see data localization as a strategy to protect their citizens from harm. Policymakers from these nations argue that by keeping data stored within national jurisdictions, or by prohibiting data from travelling through the territory or infrastructure of “untrustworthy” nations or technology companies, data will be better protected. Moreover, some governments use data localization policies as a more efficient means of ensuring that they can easily obtain information about potential criminal activities, to avoid having to go through cumbersome bilateral legal processes.

Whatever other governments’ reasons for adopting such strategies, U.S. arguments against digital protectionism are often inconsistent. For example, in its 2013 report on foreign trade barriers, the U.S. Trade Representative (USTR) argued that British Columbia’s and Nova Scotia’s privacy laws discriminate against U.S. suppliers because they require that personal information be stored and accessed only in Canada. It also complained about Japan’s uneven, and Vietnam’s unclear, approach to privacy. Ironically, the United States has argued that China’s failure to enforce its privacy laws stifles e-commerce. It seems the United States both criticizes other governments for failing to develop clear or adequate approaches to enforcing privacy and cites privacy as a barrier to trade. Moreover, the United States has long argued that privacy protections maintain trust in the Internet and that they are essential to stimulating the growth of digital technologies. Hence, it is surprising to see the United States describe too much privacy and inadequate privacy regulations as protectionist.

By 2014, the United States also argued governments that failed to establish a regulatory environment to facilitate the free flow of information were effectively distorting trade. It chided China, South Africa, Thailand and the United Arab Emirates for unclear Internet rules. It criticized South Africa for failing to effectively enforce its laws online; named Vietnam and Turkey for overreaching bans on Internet content; and condemned France for its proposals to tax Internet activity. In 2015, the USTR complained about procurement policies in Canada that don’t allow U.S. firms to bid on cloud servers for the government despite the fact the United States also limits cloud-related procurement for national security reasons.

Neither the United States nor many of its trade partners have found clarity as to what constitutes digital protectionism. Moreover, to some observers, it seems like the United States defines it as policies that with or without intent reduce U.S. market share in foreign markets. As digital trade takes up a bigger portion of the global economy, policymakers and companies will need clarity on what types of policies constitute digital protectionism and what is legitimate public policy. Given the stakes, the United States should take a leading role on defining protectionism at the World Trade Organization (WTO). The United States and likeminded countries should ask the WTO Secretariat, to examine whether domestic policies that restrict information (short of exceptions for national security and public morals) constitute barriers to cross-border information flows that could be challenged in a trade dispute. Moreover, the United States should ask the Secretariat to measure the impact of barriers such as censorship and filtering upon digital trade. With more information, we can develop fairer and more universal policies that don’t distort the global Internet.