When you negotiate with the 800 pound gorilla, the gorilla usually gets what it wants. Therefore exactly what it wants can be very important. In case you were wondering, from a trade policy perspective the 800 pound gorilla is the United States, the world’s largest economy and a largely open market, although increasingly less so these days. The United States also runs a massive global trade deficit in goods, some $887 billion in 2018 ($621 billion when services, where the US has a surplus, are factored in). Given the US dollar as the world’s reserve currency and the strength of the US economy, the US has had no difficulty in financing that deficit but the trade imbalance is a red flag for the Trump Administration. Many countries, from Canada to China, Japan to the EU, and from Mexico to Korea, depend heavily on the US market, and most (with the notable exception of Canada, which has a deficit in trade in goods and services with the US) run sizeable surpluses. Therefore, when it comes to negotiating trade pacts with the US, the US Government in the form of the US Trade Representative has a big stick to wield. Bend to our interests, or access to our market will be restricted.
The stick has got even bigger these days as the Trump Administration has moved away from dealing with trade issues in a multilateral context, through the World Trade Organization (WTO) and has instead decided to negotiate one-on-one, and to employ unilateral trade measures. These include punitive tariffs or threatened tariffs on imports to the US (such as Canadian steel and aluminum, Japanese or European cars or just about any product from China), often justified on the basis of “national security”.
That stick helps US negotiators achieve their “must-haves”, the negotiating objectives developed from consultation with US industry and deemed to be in the US national interest. While the “must-haves” can vary from negotiation to negotiation, and can shift over time, there have been some objectives that have consistently featured in virtually all trade negotiations this century. Among these are the strengthening of intellectual property regimes globally, whether in the area of pharmaceutical patents or copyright for audio-visual, music and other copyright industries, measures designed to strengthen digital industries, such as maintaining free data flows and protecting Silicon Valley’s internet businesses, more open investment regimes and so on.
When it comes to sitting down with the 800 pound gorilla, the trading partners of the US can expect to receive a list of demands in these areas, such as extending the term of copyright protection, or strengthening legal procedures against circumvention of technological protection measures, or provisions to make life easier for internet intermediaries such as Google with respect to liability for content on their platforms. The US has led the charge in these areas because better rules benefit the US economy as a leader in innovation, creativity, and new digital business models (although better rules in these areas don’t necessarily hurt the interests of the countries agreeing to them). Many of these measures have been reflected in recent trade agreements such as the Trans-Pacific Partnership that the US negotiated and then rejected when Donald Trump came to power, the new NAFTA (aka USMCA/CUSMA) and (with respect to platform liability) the newly-signed US-Japan Digital Agreement. I can confidently predict that future trade agreements that the US will seek to negotiate will also have robust IP and digital chapters, but the issue is what exactly will they contain?
It’s an important question because the US “ask” is potentially changing as the internal debate over what is good for the United States heats up in Washington. Where the US government comes out in terms of its negotiating objectives is important not only for the trading partners of the US, but also for various interests within the United States.
A battle is being fought between the content and tech industries over what measures the US Government should seek to include in future trade agreements. There are two main areas where the divisions inside the US are becoming clear. One is with regard to Section 230 of the Communications Decency Act of 1996, where the US has sought to include Section 230-type language in bilateral trade agreements. Back in September I wrote a blog “Section 230 is Dangerous—Keep it Out of Trade Negotiations”. This piece of legislation, enacted at the dawn of the internet area, allows internet intermediaries to avoid liability for content posted by users and made available on their platforms, (there is a carve-out for intellectual property violations) while also providing them with immunity if they do decide to block content that they consider harmful or objectionable. It has been called both a shield and a sword. Unfortunately, it has been widely abused in the US where it has been used mostly as a “shield”, invoked by internet intermediaries as the reason to do nothing to prevent the dissemination of unlawful content on their platforms. This has attracted widespread concern and criticism.
With regard to the “sword” part of the law, this is under attack from various conservative elements who claim it gives intermediaries the right to censor political content they disagree with. Recently the Chairman and the Ranking Member of the US House Energy and Commerce Committee have written the US Trade Representative (USTR) to urge him not to include Section 230-type language in future trade treaties negotiated by the US. It was included in the new NAFTA/USMCA (as Article 19.17) although in a somewhat watered-down version that allows Canada to implement in ways that accord with existing Canadian law. It is also in the new US-Japan Digital Agreement, although the wording is similar to that found in the USMCA, providing a criminal law override and not requiring the enactment of new legislation. Silicon Valley and the tech industry are opposed to any watering down of Section 230, but are vulnerable as more attention is focussed on the negative results of broad internet platform immunity from liability.
It is worth noting that the push to include Section 230-type language in US trade agreements is motivated not only by a desire on the part of internet intermediaries and cyber-libertarians in the US to spread the application of the immunity doctrine internationally, but also to entrench it at home where, as noted above, it is under attack. Last year when NAFTA was under negotiation, the Electronic Frontier Foundation pushed for inclusion of a Section 230 clause in the Agreement, stating that “baking Section 230 into NAFTA may be the best opportunity we have to protect it domestically.” At the time, copyright blogger Neil Turkewitz pointed out that groups promoting broad internet immunity “are deliberately trying to use trade as a shield against possible action by Congress”. So there is both a domestic and an international angle in pushing USTR to seek broad internet intermediary immunity clauses in trade agreements that it negotiates.
The risk of using trade agreement commitments to tie the hands of Congress has not escaped the attention of US legislators. Despite everything on her plate these days, Democrat House Speaker Nancy Pelosi last week indicated that she does not support the inclusion of the internet liability shield in the NAFTA/USMCA. The Democrats in the House are holding up US implementation of the new Agreement because of concerns over several of its provisions, including Mexican labour practices and high prescription drug prices, but the addition of concerns about Section 230 provisions is new. Negotiations between the Trump Administration and House Democrats regarding when the ratifying legislation will be introduced into the House of Representatives have been underway for some time, and a conclusion is reported to be near. If the US does ask Canada (and Mexico) to remove Article 19.17 as a modification necessary to ensure Congressional ratification, Canada should willingly agree.
(Update: On December 10, the US, Canada and Mexico announced several revisions to the final text of USMCA/CUSMA that they have agreed to as part of the process of US ratification. These included provisions dealing with dispute settlement, labour, environment, intellectual property drug patents, and rules of origin. No changes were made to Chapter 19, Digital Trade. Too bad).
With regard to negotiation of trade agreements, it is not only the inclusion of Section 230-type language that is being challenged. The House Judiciary Committee has written to USTR to request that in future DMCA-type intellectual property (pirated content) safe harbours—i.e. immunity from liability providing that prompt action is taken to remove pirated content–also not be included in future US negotiating objectives. In addition, the Committee argues that the DMCA-type provision in the USMCA (Article 20.89) should be removed prior to ratification. The content industry is concerned that Section 512 of the DMCA, passed in 1998, has not worked as intended and that the immunities offered to internet platforms have been abused without a concomitant commitment to removal of infringing materials.
The tech industry is now striking back and mounting its own assault against “harmful international copyright rules” that it wants the US to try to roll back in future negotiations, particularly in Europe. There is currently a case before the Court of Justice of the European Union regarding YouTube’s responsibility for copyright infringement on its platform. The outcome could be determinant of several court cases in other EU states relating to similar issues. A good analysis of this case can be found here.
Meanwhile, it has been reported that the Internet Association and the Computer & Communications Industry Association (CCIA) in their annual “Trade Barrier” submissions to USTR have once again warned about “imbalanced” copyright laws in Europe. The industry associations representing Silicon Valley giants and other internet intermediaries don’t like the EU’s move toward increasing copyright liability on internet platforms (Article 17 of the new EU Copyright Directive) nor Article 15 that requires search engines like Google to pay to use snippets of content in their listings. They also don’t like countries passing legislation dealing with online harms, such as requirements for social media platforms to act quickly to take down abhorrent, shocking material, such as Australia’s recently passed Sharing of Abhorrent Violent Materials Act. This legislation was introduced after the livestreaming of the murders committed by the perpetrator of the Canterbury, NZ, mosque massacre. For the Internet Association and the CCIA, such measures to protect the public and public morality constitute “trade barriers”!
With regard to Article 15 of the EU Copyright Directive, France has been in the forefront of its implementation into national law. This has led to a confrontation with Google which has announced that it has no intention of paying for content. Instead, it will cease using snippets and reduce listings in France to just a headline, although if publishers want more extensive highlighting of content, Google will oblige but without payment. This has aroused the ire of President Macron who has vowed to examine what options are available to him to force Google to comply with the spirit as well as the letter of the law.
This will add one more element to the ongoing trade disputes between the EU and the US, most recently sparked by the imposition of $7.5 billion in WTO-sanctioned tariffs by the US again the EU because of EU subsidies to Airbus. The EU has its own complaint about illegal subsidies to Boeing, and has threatened to retaliate. Some EU countries, notably France, are also examining a digital tax on large online companies, based on their revenues in a given country rather than declared profits. Given the definition of company size, amount of revenues etc., the proposed digital tax would disproportionately if not exclusively apply to US companies, such as Google, Facebook, Amazon etc., adding further fuel to the US-EU dumpster fire. The Trump Administration has threatened retaliatory tariffs (its favourite weapon) against French exports to the US. American champagne lovers may soon be paying the price for tax avoidance in Europe by the internet majors. (Canada is also examining a digital tax, an election promise of the re-elected Trudeau government, a move that has sparked a complaint to USTR by a coalition of US business groups).
As the EU and the US circle the wagons, de-escalation will likely come about through the start of bilateral EU-US trade negotiations, and possibly the development of international standards in the OECD to curtail the tax avoidance measures employed by the large digital companies. While not quite as big a gorilla as the US, the EU is still more than capable of protecting its bananas and it will be interesting to see to what extent digital and IP issues figure in future trade negotiations. If the US backs away from its traditional position of espousing strong pro-copyright positions, and indeed tries to force the EU to water down the provisions of the Copyright Directive, this will mark a watershed in US negotiating strategy. It will also be a likely non-starter from the EU point of view given the strong position of cultural industries in Europe. A weakening of the strong US position on IP is, in my view, unlikely (complaints from Silicon Valley about foreign copyright policies being too robust are not new) but if there was such a shift it would be negative not only for creators in the US but also internationally.
A lot will depend on what happens in Washington in terms of who has the ear of USTR and Congress–the IP-based creative industries or the internet-centric tech industries–in terms of determining US negotiating objectives in future trade negotiations. Those objectives are under continuing scrutiny and discussion “inside the Beltway” and the trading partners of the US would do well to watch closely what is happening.
At the end of the day, the gorilla may generally get its way, but a lot depends on what the gorilla thinks it really wants.
© Hugh Stephens 2019. All Rights Reserved.
(This post has been updated to refer to the agreement on revisions to the USMCA/CUSMA text agreed to by the US, Canada and Mexico on December 10).