Digital Trade on the Hill: Hearing on Expanding U.S. Digital Trade and Eliminating Digital Trade Barriers
Digital trade issues continue to grow in importance to the U.S. economy as people and businesses find new and innovative ways to use data and technology to deliver more goods and services via the Internet. However, the growth in entrepreneurship and innovation so vastly enabled by digital technologies is increasingly threatened by a growing range of digital trade barriers. On July 13, the U.S. House Committee on Ways and Means Subcommittee on Trade held an important hearing on the growing significance of digital trade to the U.S. economy, the rise of these digital trade barriers, and the ways in which U.S. trade policy, including through the Trans-Pacific Partnership (TPP), can help remove existing—and prevent future—barriers. ITIF Founder and President Robert Atkinson testified, alongside representatives from IBM, the Internet Association, PayPal, and Fenugreen (a tech startup). This post captures a few of the key takeaways.
Digital trade benefits a large segment of the U.S. economy and its workforce. Digital trade and data flows often go unrecognized (as they are often hard to see) for the important role they play in helping U.S. companies and workers, whether from firms big or
On July 1, the global production, trade, and usage of information and communications technology (ICT) products received a long-awaited boost when the expanded Information Technology Agreement (ITA)—a trade agreement that eliminates tariffs on hundreds of ICT products—came into force. The World Trade Organization (WTO) considers the initial ITA, concluded in 1996, as one of the most successful trade agreements ever. The expanded ITA is the biggest tariff-cutting deal in WTO history. It’s hoped that the deal will have similar success in driving ICT-based trade, productivity, and innovation as its successor.
The expanded ITA will build on the significant impact that the initial ITA exerted on growing global ICT trade. From 1996 to 2008, total global two-way trade in ICT products covered by the agreement increased by more than 10 percent annually, from $1.2 trillion to $4.0 trillion. The expanded ITA promotes affordability and accessibility to a new generation of ICT products by eliminating tariffs to trade on an updated list of 201 ICT products. The initial ITA cut tariffs on eight categories of ICT products, such as semiconductors, computers, and telecommunication products. The latest list includes scores of products
When Russia joined the World Trade Organization in 2012, observers hoped it signaled the start of a process that would bring Russia closer into the rules-based trading system that the WTO oversees and the market-based economic principles that underpin it. But four years on, it has become increasingly clear this has not happened. In fact, Russian President Vladimir Putin has turned away from the WTO to pursue mercantilist and protectionist policies as part of misguided and costly industrial development strategies.
Two clear examples from the past year were a compulsory data localization policy that forces digital service providers to store data on Russian citizens inside the country’s borders and a discriminatory industrial policy that favored domestic pharmaceutical and medical device producers over imports. These two policies earned Russia the dubious distinction of being one of the few countries with more than one listing on the Information Technology and Innovation Foundation’s list of the top 10 worst innovation mercantilist policies of 2015.
Russia’s new Data Localization Law acts as a barrier to cross-border data flows as it prevents many data-intensive firms—whether in social media, financial, medical, or other service sectors—from
Nowhere is today’s highly polarized political climate more visible than in the debate on trade, which has been dominated by two polar opposite viewpoints. The first sees trade as a white knight capable of fixing all our woes, no matter the circumstances, and the second sees it as an evil tyrant that strips people of their wealth. Championed by supply-side economists and fearmongering protectionists, respectively, these rigid articles of faith have crowded out more rational and nuanced analyses. This is unfortunate, because both extremes are wrong, albeit in different ways, and the focus on absolutes makes it almost impossible to seriously discuss or address loss of American manufacturing strength.
Consider, for example, the claims of commentators such as Scott Lincicome and Michael Hicks, who echo the unabashedly pro-free-trade logic of conservative economists like Milton Friedman when they argue that all of our job losses have been lost because of productivity. Hicks writes, “Had we kept 2000-levels of productivity and applied them to 2010-levels of production, we would have required 20.9 million manufacturing workers. Instead, we employed only 12.1 million.”
This assertion relies on a rigid, supply-side economic model that
Innovation Fact of the Week: Commercial Value of Illegally Installed PC Software Totaled Nearly $63B Globally in 2013
(Ed Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)
The global market for PC software is huge, but 43 percent of all PC programs that individuals and businesses installed in 2013 were not properly licensed, according to the BSA Global Software Survey. The commercial value of those illegal installations was $62.7 billion that year, up from $47.8 billion in 2007 when the illegal rate was 38 percent.
The United States has the world’s lowest rate of unlicensed software use (18 percent in 2013), but it is such a large market that the commercial value of those illegal installations is the world’s highest at $9.7 billion. In China, by contrast, 77 percent of all PC software installations were illegal in 2013, with a commercial value of $8.9 billion, the world’s second-highest total.
By region, the average rate of unlicensed software use was 59 percent or higher in Latin America, Central and Eastern Europe, the Middle East and Africa, and the Asia-Pacific region. That compared to 19 percent in North America and 29 percent
As ITIF has long argued, China pursues an autarkic, indigenous economic growth and innovation development strategy, particularly with regard to high-tech products. For example, in the semiconductor sector, China has launched a $100 billion National IC (integrated circuits) Industry Development plan designed to significantly increase domestic IC production and to reduce China’s imports of semiconductors—by half in 10 years and entirely in 20 years. To justify its mercantilist industrial development policies China claims hardship: we import too many semiconductors. This argument has been broached again recently given the potential merger between two semiconductor companies, one of which, Western Digital, has a major Chinese stockholder. This simplistic analysis needs to be called out for what it is—false—and a façade for a policy which breaches rules China agreed to when joining the WTO.
One reason China has tried to give for its aggressive and mercantilist IC industry development plan is that it runs a “large” trade deficit in semiconductors—$232 billion in 2013—which supposedly justifies efforts to replace foreign imports with domestic production, but this rationale is wrong on several levels. First, this simplistic narrative fails to account for the fact that
After almost 15 years in the World Trade Organization (WTO), China has still failed to follow through on many of the trade-liberalizing commitments it made in order to convince free trade-oriented nations to approve its membership in 2001. These broken promises have harmed the global trading system as well as both economic growth and the health of innovative industries across the United States and Europe. Here are nine commitments China made, but never lived up to:
- Refraining from requiring technology transfer as a condition of market access
Although its WTO accession agreement included rules forbidding China from tying foreign direct investment or market access to technology-transfer requirements, it remains commonplace for China to compel firms to hand over their technology in exchange for the privilege of investing, operating, or selling in China.
- Significantly reducing intellectual property (IP) theft and violations
Joining the WTO required China to recognize the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which provides protections for patents, copyrights, trademarks, service marks, industrial designs, digital content, and other intangible property. Unfortunately, Chinese IP theft grows unabated. The IP Commission Report on the Theft of U.S. Intellectual
One Hand Tied Behind Our Backs: Why America Must Do Much More to Curb China’s Dangerous Innovation Mercantilism
Ahead of Chinese President Xi Jinping’s visit to the United States this week, ITIF arranged an expert panel to discuss the ramifications and potential U.S. responses to China’s aggressive, mercantilist strategy of shutting American technology companies out of Chinese markets. Panelists referred to a number of the key points in ITIF’s latest report—“False Promises: The Yawning Gap Between China’s WTO Commitments and Practices”—which was released to coincide with the event.
Congressman Randy Forbes (R-VA), founder and chairman of the Congressional China Caucus, provided opening remarks explaining how China’s mercantilist strategy unfairly tilts the playing field against U.S. technology companies to such a degree that it threatens to undermine the U.S culture of innovation. The systemic nature of China’s mercantilist approach to stealing cutting-edge technology and intellectual property—through forced technology transfers and other means—has only grown more pervasive over the last decade. It is now critical that the U.S. government and others conduct a clear-eyed assessment and create accountability for China’s actions. Thus far, in the absence of real opposition, China has been using “controlled friction” to push as far as it can.
Robert Atkinson, president and founder of
Today, U.S. Trade Representative Michael Froman will address the 114th Congress regarding the necessity of passing Trade Promotion Authority (TPA) as a predicate for completion of the ambitious U.S. trade agenda. TPA allows the President to “fast-track” trade agreements for approval or disapproval by Congress; essentially, TPA asks the House and Senate to accept or reject a trade agreement, without amendment, within 90 days of its submission to Congress by the President. The process enables the United States to negotiate more beneficial trade agreements with other countries, in part because of the reduction in approval time compared to other pieces of legislation (that often languish in committee markup) and because it incentivizes foreign countries to make good faith trade negotiations with the United States, since they know that Congress cannot rewrite the deal.
Presidents need fast-track negotiating authority because the simple reality is that finding consensus on trade agreements becomes nearly impossible if all 535 members of Congress get a chance to rewrite the terms of trade agreements American officials have spent painstaking years negotiating with multiple foreign partners. And as Representative Froman wrote in a recent Foreign Affairs
For a country that has not run a trade surplus since Gerald Ford was in office 40 years ago, the United States is surprisingly optimistic in its widespread belief that the trade deficit is going to eventually correct itself. After all, as tidy macroeconomic models of international trade show, a nation’s trade deficit should lower the value of its currency, lowering the cost of exports and raising the cost of imports, thereby gradually reversing the deficit. After all, the models show that in the long term, current accounts must balance.
As Martin Feldstein, former Chairman of the Reagan administration Council of Economic Advisors, predicts:
“The United States cannot continue to have annual trade deficits of more than $100 billion, financed by an ever-increasing inflow of foreign capital. The U.S. trade deficit will therefore soon have to shrink and, as it does, the other countries of the world will experience a corresponding reduction in their trade surpluses. Indeed, within the next decade the United States will undoubtedly exchange its trade deficit for a trade surplus.”
Unfortunately, Feldstein wrote this in 1987.
Far from his predictions coming true, the U.S. trade