Intent versus Effect

Last week, Jake Colvin, president of the National Foreign Trade Council (NFTC), posted a really thoughtful piece that can be found here on the NFTC website. It is a reflection on a disturbing trend in trade policy: a focus on intent rather than effect.

The basis for his commentary grew out of Ambassador Tai’s appearance at the Center for American Progress, where she was asked a question about the European Union’s digital regulation actions. Her response was the United States government has “to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent.”

This is a change in the way the United States and most other countries have approached trade disputes, which have historically focused on effect rather than intent. There are several reasons for that. First, effect can be measured. A country’s action limiting trade or discriminating against imports can be measured in terms of lost sales, exports, jobs, and revenue. In fact, World Trade Organization rules as well as U.S. law have been constructed with that in mind. When alleging dumping or subsidization, a complainant must not only show the other country engaged in the unfair practice, but also that the complainant has been injured by it. In other words, there has to be an adverse impact in order to permit a response. It doesn’t matter why the country took the action it did. If it harms someone in another country, the latter has a basis for action.

Second, intent is a slippery word. We can never really know with certainty what another country’s intent was. We know what they say, but we don’t know if that was the truth, part of the truth, or a complete lie. As a practical matter, countries rarely announce they are taking a trade action either to harm another party or to protect their own, though it’s obvious when that happens, so over the years countries have become cynical about someone else’s explanation of their actions. Their cynicism is also based on the fact that all countries have taken protectionist actions from time to time—some more than others—and all have engaged in the practice of covering up their real intent with benign justifications.

As Jake’s column points out, the issue that prompted the question—EU digital trade regulation—is a good example of the gap between intent and effect, although in that case there has been no shortage of Europeans being forthright about the former, despite official statements to the contrary. His column compiles some of these statements:

  • “‘We must have mastery and ownership of key technologies in Europe,’ European Commission President Ursula von der Leyen
  • ‘Let’s go down the line—one, two, three, four, five [American companies]—and maybe six with [China’s] Alibaba. But let’s not start with number seven to include a European gatekeeper just to please Biden.’ German MEP Andreas Schwab
  • ‘The battle we’re fighting is one of sovereignty . . . If we don’t build our own champions in all areas—digital, artificial intelligence—our choices will be dictated by others.’ French President Emmanuel Macron
  • In 2019, then-French Secretary of State for Digital Affairs Mounir Mahjoubi assured publiclythat Paris’ Digital Services Tax would ‘not sanction European players.’”

There is not, however, much doubt about the effects of the European Union’s actions. Late last year the Scholl Chair published its assessment of the cost of the EU Digital Markets Act and Digital Services Act on U.S. companies: as much as $50 billion. This is a case where there is a clear harmful impact on U.S. companies and workers, which Ambassador Tai appears to be trying to excuse. Her equivocation is likely related to sharp differences of opinion over U.S. digital trade policies, with a number of Democrats determined to oppose anything they view as helping “Big Tech,” which has joined the progressive Democrats’ pantheon of villains along with CEOs generally and other large corporations. The Office of the U.S. Trade Representative’s (USTR) ambivalence on this issue is also reflected in its proposals in the Indo-Pacific Economic Framework (IPEF), which have disappointed U.S. tech companies as well as IPEF partners hoping for strong provisions on issues like free flow of data and a prohibition on data localization requirements. I appreciate the political dilemma Ambassador Tai faces, but one would think that in a case where someone else is discriminating against U.S. companies and the adverse impact is clear, she would make a stronger effort to fight for them. 

The issue of intent versus effect, of course, goes beyond digital trade, and it works in both directions. The USTR may be letting the Europeans off the hook on digital trade by assuming benign intent, but we could just as easily retaliate based on our assessment of another country’s malevolence without regard to the actual impact of its actions. In addition, most trade policy is based on reciprocity. If the United States decides to adopt an intent standard in its trade policy, it won’t be long before other countries do the same, and they will not hesitate to point the finger at us, whether we deserve it or not. Trying to evaluate intent rather than measuring effect takes our trade policy from reality to imagination, which would not be good for anybody.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.