While the global digital economy holds great promise for ACT | The App Association member companies, our members face a diverse array of challenges when entering or operating in new markets. These take the form of laws, regulations, policies, or practices that are often put into place to protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property (IP) rights. While they affect any American business looking to grow and create jobs, small businesses like App Association members are most acutely impacted.
The global digital economy, valued by the World Trade Organization (WTO) at over $3.8 trillion, has become a primary means for American small businesses to innovate and compete and provides an unparalleled means of empowerment and equity. The relatively ubiquitous access to internet-based services and goods also provides critical channels for the free exchange of ideas and enables technical protection measures, supporting human rights. With American small businesses and startups driving the growth of the digital economy and already responsible for more than 6 million U.S. jobs, this makes U.S. small business innovations one of the United States’ greatest exports.
So, we look to the U.S. government to protect our small businesses’ ability to access new markets abroad and be able to compete against them. There has never been a more urgent need for U.S. government support than today. For example, as we have explained in past blogs and formal comments on trade barriers, the European Union’s Digital Markets Act (DMA) presents a significant protectionist barrier to digital trade by interjecting government into the operations of competitive and well-functioning digital markets. These online marketplaces enable countless small businesses to grow and create jobs, and the DMA would expressly jeopardize key platform functionalities on which small businesses rely (cybersecurity, privacy, IP protection, accessibility, etc.).
And across each and every Administration and Congress since the emergence of the digital economy in the 1990s, the U.S. government has done this by promoting—through its positions in key fora like the World Trade Organization, in treaties it negotiates, and otherwise—policies that promote fair access and competition among U.S. trading partners. To run with the example raised above, the DMA has already been appropriately acknowledged by the U.S. Trade Representative as a barrier to digital trade in their annual report to Congress on trade barriers. This support has been vital to protecting American commerce and workers since the rise of the internet.
That is, until recently. In late 2023, the USTR indicated through a press inquiry response that it intends to withdraw its support for foundational digital trade policies, including with respect to enabling cross-border data flows, avoiding forced data localization mandates, protecting source code, and ensuring that digital products are not unduly discriminated against. As we made clear at the time, stepping away from the negotiating table weakens the global competitiveness of U.S. startups and small businesses, as well as workers, and cedes leadership to countries like China that remain at the table, buoying anti-democratic and oppressive governance proposals and policies that directly contradict U.S. policies. And even more recently, the USTR’s recently-issued 2024 edition of its report to Congress on trade barriers scales back its recognition of a wide range of significant digital trade barriers, including data localization policies, the DMA, and others.
So when our colleague, Caleb Williamson, asked U.S. Trade Representative Katherine Tai during a recent South by Southwest panel about why the DMA is suddenly no longer considered a trade barrier and how this Administration plans to support small businesses that rely on platforms for access and trust, our hope was that we might gain some insight into how the U.S. government plans to push back against a policy that is clearly a protectionist measure put into place to discourage U.S. digital economy growth in the EU. Her answer?
“So, it’s true that [the DMA] was in the 2023 report as a potential barrier, and that does reflect our traditional approach to trade, which is to look at regulatory activities from other countries and to see how they might impact American company interests. I think that the DMA is a really good example of the cusp of change and the cusp of increased nuance that we are bringing, especially to digital economy issues, when we talk about the platforms. Yes, I know a lot of small businesses have told me that the platforms are creating the entry point for them to connect with the global economy, and that’s a wonderful thing that’s something that we should celebrate because it is about opening up more opportunities, especially for the small and the medium companies. Here’s the issue: shouldn’t we have more platforms, then? Shouldn’t we have more opportunities like that? I think the DMA’s approach is to look at some of these platforms and to look at their role as gatekeepers. But as we’re connecting the trade conversation with the competition and anti-monopoly conversation, the other way I might frame that is some of these platforms serving as the choke points, being a platform like that, when you’re operating in the best possible terms you’re creating opportunities, but when there aren’t enough of those types of platforms, what that means is those platforms have a lot of power to determine when and how those opportunities can be accessed by the smalls and the mediums, so that’s an aspect of our trade policy that is in formation right now, which is to not rely on our old instincts of, what’s the nationality of your company and whose side I should be fighting on right now. The question that we’re looking at is, what’s the pro-democracy, pro-competition, and pro-worker angle, and it is shifting the conversation that we’re having.”
This response and the Administration’s rationales offered to date for their unprecedented digital trade policy shift do not give us much to be confident about. Significant questions remain unanswered, such as how have the digital trade policies of the United States, which have enjoyed bipartisan support for more than 25 years and tracked with the growth of the app economy and its support for more than 6 million U.S. jobs, suddenly ceased to support competition, worker, and human rights priorities? And how would international trade agreements the United States is part of prevent the application of U.S. policy to companies operating domestically?
It’s important that the U.S. government understand that small business innovators do not seek to replicate the EU’s interventionist policies, none of which have translated to increased competitiveness or growth for its Member States. We are not doomed to repeat the EU’s mistakes on innovation, and we urge policymakers around the world to learn these lessons before it’s too late.