Tech Fears Chinese Digital Trade Lead in Trump Administration

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By Alexis Kramer

Dec. 7 — President-elect Donald Trump’s promise to scrap the Trans-Pacific Partnership trade pact has stoked U.S. tech sector fears that China will take the lead in setting standards for digital trade.

Software and mobile application trade groups say a free flow of data facilitates the exchange of technological innovation and scientific discoveries. The groups also argue that a ban on localization rules, which require locally created data to be stored on servers within the same country, would encourage business growth and competition. But without the TPP, China will likely assume a greater voice in developing trade rules that won’t contain such data provisions, attorneys and technology sources told Bloomberg BNA.

“We’re concerned China will see this as an opportunity to take advantage and claim a larger role on the stage,” Morgan Reed, executive director of ACT | The App Association, a mobile app trade group in Washington, said.

The TPP’s demise could enable China to step in and take the U.S.'s place in leading trade agreements in Asia, according to David Glynn, an international trade lawyer and of counsel at Holland & Hart LLP in Denver. Those agreements likely wouldn’t contain a ban on data localization rules nor enable the free flow of data, he said.

China has several laws prohibiting the storage of local data outside of the country. China’s Population and Healthcare Information Management Measures ban citizens’ health and medical information from being stored on servers outside of China. The country’s Online Publishing Service Management Rules require online publishing companies to maintain servers and other network equipment in the country.

The U.S. has had continuous concerns over China’s data localization policies. The U.S. Chamber of Commerce, along with a global coalition of business interests, in August urged China to change proposed rules requiring insurers and other businesses to maintain sensitive data servers in the country. They said such rules would impede economic growth and create barriers for businesses trying to enter the Chinese market.

Glynn said China is not likely to support a ban on data localization nor promote cross-border data flows. China’s “internet policy is an indicator of the government’s desire to control information flow—clearly not a policy geared to free flow of data,” he said.

With the TPP moribund, the technology sector isn’t waiting around for the deal to be formally scrapped. It’s pushing Trump to champion open data provisions via other avenues in the absence of the trade pact.

Tech trade groups have been communicating directly with the transition team, sending the incoming administration letters and policy recommendations. They’re also developing lobbying strategies for when the administration is in place.

The tech sector wants to ensure the incoming administration understands that the free flow of data, and bans on data localization rules, are critical to U.S. exports, Matthew Schruers, vice president for law and policy at the Computer & Communications Industry Association, said. “I’m confident that when the issues are understood, promoting digital trade is not a partisan issue,” he said.

A spokesman for the Trump transition team didn’t immediately respond to a request for comment.

Trump Nov. 21 confirmed his plan to withdraw the U.S. from the TPP, an agreement finalized in 2015 between 12 countries. China wasn’t a party to the accord, which isn’t the only multilateral Pacific trade deal going. China is one of 16 parties to a proposed trade agreement known as the Regional Comprehensive Economic Partnership (RCEP), which is still under negotiation and doesn’t include the U.S.

Other Avenues

The tech sector has called the TPP’s data provisions vital for digital trade and economic growth. The electronic commerce chapter of the TPP would permit the transfer of data across borders and ban data localization.

Jeremy Malcolm, senior global policy analyst at the Electronic Frontier Foundation in Washington, said China’s greater voice in trade could negatively impact e-commerce companies looking to do business in foreign markets. But the TPP isn’t the only way to address data localization.

“We have been using trade agreements to deal with digital trade issues, but it’s not the only avenue,” Malcolm said. International fora, such as the G-20 and the Internet Governance Forum, could be another avenue to setting digital trade standards, he said.

Victoria Espinel, president and chief executive officer of BSA | The Software Alliance, said that if the TPP doesn’t go through, there are other opportunities for the U.S. to show leadership in digital trade, such as through bilateral discussions and agreements. Espinel said her organization will reach out to the new administration to discuss the importance of cross-border data transfers and a data localization ban.

Several other groups in the tech sector have been urging the incoming administration to make digital trade a U.S. priority.

Reed said that the ACT | The App Association has been in direct contact with the transition team and has been speaking with Trump transition agency landing teams as they come in on the importance of the TPP’s data provisions.

“It’ll be very important for the Trump administration to make sure it is doing everything it can to set the rules of the road,” Reed said.

The Internet Association sent to Trump a proposed policy roadmap, which urged him to support “strong digital trade policies that promote the free flow of knowledge and information across borders.” The roadmap provides that the U.S. should promote a “trans-Atlantic” digital single market and support trade agreements that prohibit data localization.

The Information Technology and Innovation Foundation (ITIF) issued a memo to Trump, recommending policies that could spur digital trade. The ITIF proposed that the new administration initiate negotiations with U.S. trading partners for a “Geneva Convention on the Status of Data,” which would establish international legal standards for government access to data.

Stephen Ezell, ITIF’s vice president for global innovation policy, said that pursuing such a strategy “would go a long way” to helping protect data flows across borders.

“We remain hopeful the incoming president prioritizes digital trade policy issues as digital trade is a key enabler of the modern global economy, for both traditional and digital industries alike,” Ezell said.

To contact the reporter on this story: Alexis Kramer in Washington at aKramer@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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