Time to Align on Digital Governance

The last decade ended with a flurry of activity on U.S. trade policy. In the final few months of 2019, the Trump administration signed the U.S.-Mexico-Canada Agreement (USMCA) and reached “phase one” deals with China and Japan . Speaking this week in Davos , President Trump called these agreements “a new model of trade for the twenty-first century.” They could be—but not because they allow U.S. farmers to resume soybean sales to China. Instead, the potential power of these agreements lies in their influence on global rulemaking, especially in the area of digital trade.

The decade ahead is likely to see a reckoning on a set of issues that broadly fall under the heading of “digital governance.” Whoever wins the global debate over the rules, standards, and norms that govern data privacy and data flows, technology standards, cybersecurity, and critical technologies will have a major competitive advantage in the economy of 2030. The outcome of this contest will also shape the security and livelihoods of Americans for years to come.

There are few established global rules on digital issues and no single international institution to oversee them, as the International Monetary Fund does for global payments, the World Bank for development, and the World Trade Organization (WTO) for trade. While today’s challenges may not call for a new “Digital Trade Organization” with a building in Geneva, a more cohesive framework of rules, standards, and norms in the digital space is clearly needed. I call this “the fifth pillar” of global economic governance, following the three original Bretton Woods institutions created after World War II and the energy arrangements set up in the 1970s.

Unlike the postwar period, when the United States set most of the rules for the global economy, today there are many important players on digital issues, including the European Union, Japan, China, and the private sector . The differences in approach—even basic philosophy—among these players are large. This starts within the advanced world, where the United States and European Union are at odds over data privacy , EU efforts to limit the market power of firms like Facebook and Google, and digital taxes that are popping up across Europe.

Yet U.S.-EU differences are minor compared to the gulf that separates both from challengers like China and Russia. Beijing takes a dim view of personal privacy and has been aggressively gobbling up both data and critical technologies by means fair and foul . For its part, Moscow has been a notoriously disruptive actor in cyberspace. And the two countries are working together in a United Nations working group to set rules on “internet sovereignty” that run directly counter to Western notions of an open internet. Meanwhile, India and others have aggressively championed data localization for broad categories of data.

In the face of these challenges, there is a compelling case for the United States and Europe to align with allies like Japan, Canada, and Australia on a common approach to digital governance. The shared interests and values in this group on issues like privacy, data flows, and an open internet far outweigh their differences.

There are some encouraging signs of greater allied cohesion on digital issues, starting with hints of convergence between the United States and European Union on privacy. Having established the notion of personal data as a human right in its General Directive on Data Protection (GDPR)—currently the world’s de facto standard for privacy—EU countries seem to be having second thoughts about the practical implications of GDPR. For its part, the United States is finally having a real debate about federal privacy standards , prompted by California’s adoption of standards that look a lot like GDPR. Concerns about market concentration in the technology sector are roiling U.S. politics as much as European. And a temporary truce was reached this week in the noisy transatlantic dispute over digital taxes.

Meanwhile, Japan is emerging as a kind of global broker on digital issues. In the past two years, Tokyo has signed trade deals with both the European Union and the United States that bridge differences between the two. The EU-Japan economic partnership agreement signed in July 2018 establishes “mutual adequacy” of the two economies’ data protection laws, enabling the free flow of nearly all personal data between the two. The “phase one” trade deal between the United States and Japan signed in October 2019 includes a separate U.S.-Japan digital trade agreement that, among other things, prohibits customs duties on digital products, enables cross-border data flows, and bars data localization. These provisions build on ones that were originally included in the Trans-Pacific Partnership and later enhanced in USMCA.

Japan’s prime minister, Shinzo Abe, has staked out a position on the global stage as a leader on digital governance. Exactly one year ago at Davos, he laid out the concept of “ data free flow with trust ” (DFFT) and said he wanted the meeting of Group of 20 (G20) leaders in Osaka in June 2019 to be “long remembered as the summit that started worldwide data governance.” Despite the awkward English phrasing, Abe won endorsement of DFFT in the Osaka communiqué and got G20 leaders to sign a separate “ Osaka Declaration on Digital Economy ” that gave a nudge to the WTO e-commerce negotiations .

Advanced economies have a chance to build on this progress and promote a common approach to digital governance through a series of high-level meetings in 2020. First up is the Group of 7 (G7) summit, expected to be hosted by President Trump at Camp David in June . The White House has not yet laid out themes or priorities for the summit, but digital governance should be prominent among them.

Useful groundwork for the G7 summit could be laid through newly revived trilateral discussions among trade ministers from the United States, the European Union, and Japan. This promising channel established in late 2017 has focused primarily on China’s harmful industrial subsidies and forced technology transfers. In their latest statement earlier this month , the three trade ministers included a brief reference to cooperation on the WTO e-commerce negotiations, but they should consider a new workstream on broader digital governance issues, ranging from data flows to protection of critical technologies.

Meanwhile, the WTO ministerial meeting scheduled for June in Nur-Sultan, Kazakhstan, is an opportunity to drive toward conclusion of an e-commerce agreement that advances G7-preferred rules. China’s participation in the negotiations may make it difficult to reach agreement among all the parties involved, but this is another rationale for like-minded countries to align, either to sway Beijing or move ahead on their own.

Finally, two regular economic summits in November offer additional opportunities to advance G7-preferred norms—if not formal rules—in the digital space. Malaysia hosts the annual Asia-Pacific Economic Cooperation (APEC) Leaders’ Meeting in Kuala Lumpur on November 11-12, while Saudi Arabia hosts the G20 summit in Riyadh on November 21-22. Expectations for both events should be low, but these forums offer an opportunity to reinforce norms agreed elsewhere.

The Trump administration has not shown much enthusiasm for multilateral undertakings, but in practice it has taken a number of useful steps to advance digital rulemaking, particularly through USMCA and the Japan deal. There is a chance in the year ahead for the United States and its allies to come together to start building the missing “fifth pillar” of global economic governance.

Matthew P. Goodman is senior vice president and holds the Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Matthew P. Goodman

Matthew P. Goodman

Former Senior Vice President for Economics