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  HOME | Business & Economy (Click here for more)

US, China to Face Off over Digital-Market Regulation

MADRID – World Trade Organization members are set to launch talks Wednesday on how to govern global digital commerce, for the first time tackling 21st century trade issues that have sparked intense rivalry among the United States, Europe and China.

The negotiations face hurdles from the outset, coming against a backdrop of international trade tensions that have crimped global economic growth since early last year. Meanwhile, the WTO is under pressure to reform from Washington, which is dubious about the body’s effectiveness.

At stake in the talks is a global framework to regulate digital trade in goods and services, a market that is currently subject to a patchwork of different rules. Such a system would potentially remove obstacles such as cross-border sales barriers that disrupt access to services and hinder growth in online trade, enabling small companies to access global markets and helping giants like Amazon.com Inc. and Alibaba Group Holding Ltd. tap a bigger market.

The market, which encompasses areas such as online retail, hotel bookings, music-streaming services and cloud computing, is valued at almost $6 trillion annually. That figure is more than double the level five years ago and could top $10.3 trillion in 2022, according to market-research firm Euromonitor International.

The creation of such a framework would mark a victory for an organization that has faced a wave of recent criticism.

“The failure to create rules around digital trade heads on was emblematic for the declining relevance of the WTO,” said Marietje Schaake, a member of the European Parliament’s International Trade Committee. “Now the signatories, including China, need to put their money where their mouth is.”

The effort already faces headwinds.

Only 76 of the WTO’s 164 members are participating in the talks, highlighting the lack of consensus on the issue. Others could later join the negotiations or the final agreement.

“A key benefit of this initiative is that it demonstrates the WTO is prepared to address modern trade issues through negotiations and it’s doing so in an inclusive way,” said a trade official in Geneva, where the WTO is based. “It’s coming at a crucial time.”

Still, infighting could derail the nascent push.

China’s last-minute decision to join the initiative is vexing the US, which is separately fighting Beijing over trade matters, including forced technology transfers.

“I am worried that the inclusion of China in these talks could open the door to obstruction and a watered-down agreement,” said Rep. Suzan DelBene (D., Wash.). “If China can be a constructive partner, I’m happy to include them; but history has shown us that this is unlikely.”

A Beijing-Washington clash over e-commerce would add to a list of US complaints about the WTO, including the organization’s inability to curb China’s market-distorting policies.

The US has joined with the European Union and Japan in a bid to revamp the WTO, seeking to update subsidy rules in an effort to combat China’s state capitalism.

Competing US and Chinese visions of the digital economy could emerge as yet another flashpoint between the world’s two biggest economies. While Washington has pressed for open global markets to boost American businesses, Beijing has promoted homegrown giants in its massive but closed market.

“China has been very keenly interested in doing something on e-commerce, but their model is very much driven by and focused on some of the big platforms they have,” a European trade official said. “People refer to it as the Alibaba model.”

Beijing also forces global companies to store Chinese citizens’ data domestically, which could emerge as a contentious issue. The EU and the US plan to push against forced data localization, officials say.

China is not alone in pressing companies, mostly from the West, to place servers inside their countries. Moscow said in 2015 that Alphabet Inc.’s Google moved some servers to Russia to comply with a law on personal data. In 2016, PayPal Holdings Inc. suspended its Turkish operations over Ankara’s demand for localized data centers.

WTO members seeking digital-economy rules are all calling for a strict pact. The contours are expected to emerge during a meeting next month, when countries table their demands.

The risk is that competing interests will yield the lowest common denominator.

“The scope hasn’t been limited,” the Geneva-based trade official said. “The level of ambition will be determined by what the members want.”

 

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