Trade Diversion

USTR Ron Kirk visited Google last week for a round table on “Supporting Silicon Valley in the Global Economy.” One of the big headlines coming out of event is an argument, pushed by Google, that online censorship is a trade barrier.

The analogy/conflation between web openness and trade openness seems increasingly prevalent. The Economist devoted a cover story to the internet’s openness earlier this month and said that “the internet is as much a trade pact as an invention… Just as a free-trade agreement between countries increases the size of the market and boosts gains from trade, so the internet led to greater gains from the exchange of data and allowed innovation to flourish.”

While at some level the analogy is appropriate because there are common lessons, such as the fact that specialization is limited by the size of the market, I doubt that it’s as valuable when discussing the nuts and bolts of such (informational or economic) exchanges or the policies that should be adopted. But Google is pushing it hard:

Chief Legal Officer David Drummond… said Google is seeing an “alarming increase” in governments around the world censoring the Web, and he called on the U.S. government to treat the issue much as it would if a foreign nation was blocking the trade of physical goods.

“If this was happening with physical trade, we’d all be saying this violates trade agreements,” he said…

Drummond said barriers take several forms, such as blocking access to Google’s YouTube video service or by imposing licensing requirements that stipulate the company must install servers within a country in order to create a “local presence”–a definition that subjects content on those servers to local laws.

This argument, as presented by the WSJ, isn’t consistent with WTO law. Trade barriers discriminate between domestically produced goods and imports produced abroad. To quote myself:

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

In short, “free trade” doesn’t mean “everything goes” and local laws can’t govern consumption. Free trade means non-discrimination with respect to producers’ origins.

The more plausible line of argument is that trade agreements can be used as leverage in negotiating non-trade issues:

“In our view at Google it’s high time for us to start really sinking our teeth into this one,” said Drummond.

“We have great opportunities now with pending trade agreements to start putting some pressure on countries to recognize that Internet freedom not only is a core value — that we should be holding them to account from a human rights standpoint — but also that if you want to be part of the community of free trade, you are going to have to find a way to allow the Internet to be open.”

But making trade negotiations contingent on pledges against government censorship doesn’t mean that Chinese-style internet censorship constitutes a trade barrier in the traditional WTO sense.

Bloomberg:

The Obama administration offered $147.3 million in assistance to Brazilian cotton producers and suspended an export-credit program for American farmers, in a bid to end a trade dispute with the Latin American nation.
The government will also seek to ease sanitary barriers to Brazilian imports of pork and beef, U.S. Trade Representative Ron Kirk said in a statement today on the preliminary deal. The U.S., which lost a World Trade Organization ruling in August that said its cotton subsidies violate global trade rules, will work with Brazil to reach a comprehensive agreement by June.
“We now have a clear path forward, one that is in the best interest of both the United States and Brazil,” Kirk said. “As a result of our discussions with Brazil we have avoided imposition of higher tariffs.”
The U.S. for now dodges as much as $830 million in trade sanctions on 102 goods including ketchup, cars and boats that Brazil targeted. In addition to financial assistance for Brazilian farmers, the U.S. halted the GSM-102 program that guarantees the credit foreign customers use to by American cotton, and said it will be restarted with higher fees.
Any other changes to U.S. cotton programs are pushed back until at least 2012, when the U.S. Congress will have to revisit the broader issue of farm subsidies before existing legislation governing the nation’s agriculture policies expires.

Gilbert Kaplan says that if Chinese censorship forces out US content companies like Google, the US should retaliate by erecting trade barriers to Chinese computer hardware exports. Nate Anderson at Ars Technica reports:

Dealing with censorship as a trade violation isn’t a new idea. Computer industry lobbying group CCIA was talking up trade complaints as a way to handle Chinese censorship back in January. CEO Ed Black said at the time, “It is increasingly apparent that censorship is a barrier to trade, and that China cannot limit the free flow of information and still comply with its international trade obligations. The Chinese government has said it is gathering more information before deciding how to proceed and we would urge that they look at the issue holistically with government, economic and trade officials involved in the decision.”

Of course, lobbyists aren’t the best source to describe trade law. I’d prefer to consult the folks at IELP, for example.

Banning the consumption of tradable goods and services isn’t a WTO violation per se; international trade law emphasizes non-discrimination in the treatment of foreign and domestic products. Consider Antigua’s online gambling case against the US at the WTO. The basis for its claims was not that the US was obliged to allow online gambling, but that if it allowed domestic online gambling (such as allowed by the Interstate Horseracing Act), it was obliged by its GATS commitments to also allow online gambling provided by foreign suppliers. Similarly, I suspect that censorship only constitutes a trade barrier if foreign sources of information are censored more heavily than domestic providers, i.e. a difference in national treatment.

If China censors both domestic and foreign internet sites, then it is unlikely that its WTO commitments oblige it to liberalize both. Thus, the line of thinking from folks like Dan Drezner and Simon Lester (1, 2) is that WTO law isn’t much of a tool to wield against Chinese censorship.