Digital Trade Agreements and Domestic Policy

5 Pages Posted: 19 Apr 2021

Date Written: April 14, 2021


National debates over policies that affect the flow of digital information are heating up as censorship, surveillance, control over personal data, and requirements to store data locally have emerged as contentious political issues. In the coming years, governments will need to carefully craft policies that preserve the free flow of information and avoid data nationalism.

But these policies are not just domestic in nature. The regulations that emerge will have an international dimension due to their impact on companies and individuals in other countries. In an ideal word, domestic regulation would not lead to trade conflict, but in reality it often does. To address the conflicts that might arise from regulatory effects abroad, there have been efforts at the bilateral, regional, and multilateral level to develop international rules on digital governance. The scope of digital trade agreements is still evolving, but, to take one example, the recent U.S.-Japan Digital Trade Agreement defines “digital product” as “a computer program, text, video, image, sound recording, or other product that is digitally encoded, produced for commercial sale or distribution, and that can be transmitted electronically.”1 With this and other provisions that establish broad coverage, these agreements will have an impact on virtually all commercial activity on the internet and on smartphone apps.

The international rules for digital trade address specific regulatory issues such as consumer protection and spam, but they also include the broad principle of nondiscrimination, which offers more general international oversight. Two key aspects of that principle are the nondiscrimination obligation, which in the international trade context requires that domestic regulations treat comparable foreign and domestic products alike and treat comparable foreign products from different countries alike; and exceptions for various public policies, which ensure that the international trade regime does not interfere with policymaking on nontrade issues. Under the Trump administration, the United States put forward specific language during negotiations on these digital agreements that results in an overly broad approach to the nondiscrimination obligation and a narrow approach to the exceptions. This paper argues that the Biden administration should reconsider current U.S. policy in this area and adjust the proposals it has made in the ongoing World Trade Organization (WTO) e‐​commerce negotiations.

Keywords: WTO, World Trade Organization, international trade, e-commerce, international commerce, nondiscrimination in tradeglobalization

JEL Classification: F00, F01, F02, F10, F12, F13, F15, F16, F18, F19

Suggested Citation

Institute, Cato and Lester, Simon, Digital Trade Agreements and Domestic Policy (April 14, 2021). Cato Institute, Free Trade Bulletin No. 79, Available at SSRN:

Cato Institute (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Simon Lester

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

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