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Seattle’s APEC meetings dive into future of digital trade

By Gregory Scruggs, The Seattle Times
Published: September 2, 2023, 5:39am

SEATTLE — A cargo ship loaded with Palouse wheat at the Port of Seattle’s Terminal 86 grain facility could be headed to Peru or the Philippines — thanks to the work of a now 30-year-old trade facilitation group, Asia-Pacific Economic Cooperation, which helped align customs regulations and port inspection procedures.

APEC, which currently has 21 commercial partner states across the region, found its footing during a landmark summit on Blake Island, Washington, in 1993.

This November, the U.S. will host APEC for the third time in San Francisco and receive world leaders, including potentially Chinese President Xi Jinping. In preparation for the summit, a final round of closed-door cabinet-level meetings took place earlier in August in Seattle, bringing delegates from across the region including Russia and China, to hash out views on food security, energy, health and the role of women in economic development.

By hosting the highest-profile APEC meetings in the tech hubs of Seattle and San Francisco, the U.S. has made the future of digital trade, or the commercial transaction of bits and bytes, a centerpiece of its host year.

The rules governing a container ship that leaves the Port of Seattle destined for Busan, South Korea, or Valparaiso, Chile, are well-established, thanks in part to processes set in place by APEC over the past three decades. But less clear are what rules govern data privacy and management in scenarios such as a Vietnamese company using Amazon or Microsoft cloud services, a Bellevue startup flying a drone over a Chilean vineyard and sending information back for analysis, or a Taiwanese fan sending a digital payment to a Tacoma-based YouTube influencer.

There largely aren’t any, and governments are racing to catch up, with forums like APEC presenting one of the primary venues for debating how to govern the global digital economy. That made the Seattle meetings, billed as Digital Month, a significant opportunity to shape digital-trade policies.

“It’s a new era in trade because of digital and AI,” said National Center for APEC President Monica Hardy Whaley. “Seattle has the expertise and real-world examples in our community. Once again, we are at the starting point of these discussions.”

It is unclear if APEC leaders will issue a joint statement at the fall formalities as all 21 members, including China and Russia, must agree on the language. Even if they do, the message will be largely symbolic.

APEC is a nonbinding forum frequently referred to as an “incubator of ideas” or “test kitchen.” But some of these ideas could gain wider traction, whether taken up by binding forums like the World Trade Organization or serving as the genesis for regional trade deals like the Trans-Pacific Partnership.

Going digital

In physical trade, countries can set tariffs or quotas on imports in order to protect domestic industries. If those protectionist policies run afoul of an existing trade agreement between two countries, they can file a dispute at the WTO. For example, the WTO ruled that Washington state tax breaks for Boeing were an illegal subsidy in 2019.

Until rules are set in place, however, there is no legal recourse as some countries pursue protectionism in digital trade. For example, China and Vietnam favor policies that enshrine so-called data localization, or requirements that data on firms and citizens be physically stored in-country. Meanwhile, Indonesia passed a regulation in January authorizing duty collection on intangible goods, like streaming songs and movies.

“If you’re going to pay to import data flows, it’s a disincentive to invest,” said Ed Brzytwa, a former U.S. government APEC official currently the vice president of international trade at the Consumer Technology Association, which promotes free digital trade.

Another hot-button issue is whether companies can consider algorithms and source codes digital trade secrets. On Aug. 7, Rep. Pramila Jayapal, D-Seattle, admonished trade negotiators for such provisions at a University of Washington town hall on digital trade. “Big Tech’s demands to insert secrecy guarantees into our trade deals would endanger government regulation, as well as the public’s understanding of how their data is being utilized,” she said.

So far, APEC’s most robust effort to address the digital-trade debate has been a voluntary certification system, dubbed the Cross-Border Privacy Rules System, whose members include Seattle-based Expedia. The U.S. brokered the launch of the system during its last host year in 2011, when Trans-Pacific relations were much stronger in the wake of former President Barack Obama’s “pivot to Asia.” It’s proven successful: The privacy scheme went global last year.

More than a decade later, the Biden administration is in the midst of negotiating the Indo-Pacific Economic Framework, a trade pact involving many Asia-Pacific countries with the notable exception of China, where digital trade is a key sticking point. The stakes are high for the broader business community — not just tech companies.

“The nature of trade has fundamentally changed and largely gone digital,” said Nigel Cory, an associate director at the Information Technology and Innovation Foundation and a former Australian APEC official. “Even in physical trade, whether it’s Boeing planes or other major exports, there is an increasingly large and critical digital component that is divided up and split amongst firms in different countries.”

U.S. tech giants recognize the need for digital trade frameworks. In April, Microsoft sent a letter to the U.S. trade representative, arguing for digital trade provisions similar to those in the United States-Mexico-Canada Agreement, which prohibit countries from requiring data localization and demanding source code, and followed up with another set of comments to IPEF negotiators in October. Lobbyists from Amazon and Microsoft and other top tech companies met directly with U.S. trade negotiators to help craft the new Indo-Pacific trade framework in May, according to Bloomberg.

In the absence of a broader digital free trade area, the US signed a bilateral digital trade agreement with Japan in 2019 that ensures the free flow of data between the two countries. It’s the kind of deal that will provide certainty for investors looking at opportunities like the Japan-Washington State AI Innovation Meetup, which has paired Washington startups with Japanese venture capitalists and vice versa.

Meanwhile, Washington tech companies including startups try to continue to do business despite unclear guidance or even the opportunity to engage regularly in international trade talks. For example, Bellevue-based Pollen Systems sells its agricultural analytics services to Chilean orchards or Malaysian palm oil plantations, but it still questions the current data management practices.

“Say a drone flies over a property in Malaysia and data gets collected. How does that data get from the drone to the right server and be monitored over time?” said Pollen Systems founder and CEO Keith McCall after speaking to a group of APEC delegates. “I would like to see a very clear separation between the data and the data management.”

A club is born

Tech startups seeking clarity on digital trade rules echoes the situation facing exporters — eager to engage in international trade at the end of the Cold War — 30 years ago.

By hosting a leaders summit on Blake Island with the world’s then No. 2 economy Japan and rising China, President Bill Clinton cemented the notion that Pacific Rim countries are the world’s most prolific trading partners, and they would benefit from an institutionalized forum to share ideas. As a Pacific-oriented deep-water port, Elliott Bay made an ideal backdrop as world leaders waved for the camera from the deck of a state ferry.

Since then, APEC grew to its current 21 members and established a headquarters in Singapore that prepares research on trade policy and coordinates an annual series of meetings to share best practices with the goal of lowering trade barriers and encouraging a freer flow of goods, people and services.

In a nod to where it all began, Seattle became home to the U.S. APEC headquarters in 1996.

“It was a very hopeful time in trade,” said Hardy Whaley, who attended the Blake Island summit. “Economic interdependence was seen as the way to world peace — people who trade with each other are less likely to nuke each other.”

Not every white paper becomes policy, and tracking how an idea bandied about in a dry working session becomes enshrined in formal regulations is opaque, but APEC can boast some concrete outcomes. The APEC Business Travel Card allows business travelers fast-track entry through airports. An air services agreement allowed Alaska Airlines to share flight numbers with the likes of Japan Airlines. Customs and port officials toured facilities from Seattle to Shanghai, then took home lessons on how to minimize international cargo inspection times without compromising security.

But in recent years APEC has had to grapple with tense international relations among its biggest members. Last year, the U.S. and allied delegates walked out during talks to protest Russia’s invasion of Ukraine. In 2018, the Leaders Summit failed to issue a joint declaration for the first time over US-China trade disputes — leaders reached consensus even during the Hainan Island spy plane incident in 2001, a previous low point in Sino-American relations. On the eve of the Seattle meetings, The Washington Post reported that the U.S. will deny entry to sanctioned Hong Kong Chief Executive John Lee for the November summit.

In addition, U.S. trade and domestic policies have overshadowed its APEC connections. In 2017, former President Donald Trump withdrew the U.S. from the Trans-Pacific Partnership. And Biden’s calls for “worker-friendly trade policy” meant the U.S. is unlikely to enter new free trade deals on his watch.

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But despite domestic and foreign policy drama, APEC’s diligent work on mundane issues like market access and standards continues.

“It’s like Thanksgiving with the family,” Hardy Whaley said. “You don’t always get along, but you know you’re going to see each other. The nuts and bolts of APEC keep moving forward.”