China Resists U.S., EU Talks on Global Digital Trade Deal, Sources Say

(Bloomberg) -- China risks being locked out of talks to establish new global rules to govern the $25 trillion e-commerce marketplace as the U.S. and other nations resist an effort by Beijing to curb the plan’s ambition, according to three people familiar with the discussions.

Negotiations, which are set to be launched on Friday on the sidelines of the World Economic Forum’s annual meeting in Davos, seek to establish a baseline international regime for modern trade, reduce cross-border hurdles to e-commerce and cut costs, said the people, who asked not to be identified because talks are ongoing.

The accord seeks to re-invigorate the World Trade Organization’s stalled e-commerce agenda amid criticism from U.S. President Donald Trump that the institution has become irrelevant and has failed to cope with China’s rise. Such an agreement could be a boon for U.S. businesses like Alphabet Inc., Amazon.com Inc. and Facebook Inc., which have sought to knock down burdensome trade restrictions on international data flows and server localization requirements.

Replying to a request for comment, China’s mission to the WTO said a final decision had not been made yet on whether to join the e-commerce discussions.

Cold War

The e-commerce move is emblematic of how what some see as a brewing Cold War between the U.S. and China is casting a shadow over global trade in a way that may have lasting consequences. An e-commerce agreement struck without China, which is expected to do $5.5 trillion in online sales this year, would raise the prospect of China’s increasingly powerful online companies like Alibaba Group Holding Ltd. and Baidu Inc. continuing to operate under a different set of rules from their U.S. and European rivals.

The Trump administration has been one of the leading proponents of the new e-commerce deal in Geneva, according to the people. In early talks, China sought to water down a statement announcing the start of the negotiations, which may lead to the nation being excluded from the group, the people said.

The nearly 70-signatories, which include the European Union and Japan, to the statement due to be released on Jan. 25 are expected to confirm their intention to “commence WTO negotiations on trade-related aspects of electronic commerce,” according to a draft obtained by Bloomberg. “We will seek to achieve a high standard outcome that builds on existing WTO agreements and frameworks with the participation of as many WTO members as possible.”

U.S. business groups have been skeptical of China’s participation. Some in the U.S. tech world believe the Chinese would simply try to stall and water down any pact and commitments on important issues such as mandating the free flow of data across borders.

Open Trade

“We are not convinced that China is prepared to move in that direction on critical issues such as cross-border data flows, or that its political system can really embrace open digital trade at this time in its development,” said Rufus Yerxa, president of the Washington, D.C.-based National Foreign Trade Council. “Until this is the case, it is probably better not to have them inside the group working against those goals.”

Speaking in Davos on Tuesday, Zhang Weiwei, dean of the China Institute at Fudan University, said Chinese leaders had long appreciated the commercial potential of the Internet but remained concerned over what they saw as a Western obsession with the Internet as a tool to spread democracy. “China sees this as a double-edged sword,” he said.

Beijing officials have said they would prefer the e-commerce talks to take place on a multilateral basis among all of the WTO’s 164 members, rather than among a select group of like-minded countries. The draft of the Davos statement encourages “all WTO members to participate” but proponents of the e-commerce pact have been eager that it not get bogged down in the WTO’s normal negotiating processes under which any single member has veto power.

WTO Deputy Director-General Alan Wolff told Bloomberg it would be regrettable if China, or any other country is left out of the forthcoming e-commerce negotiations. “All must benefit and all have a chance to join in shaping the trade rules that that will govern this transformation of the world economy,” Wolff said in an email.

To contact the reporters on this story: Bryce Baschuk in Geneva at bbaschuk2@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, ;Simon Kennedy at skennedy4@bloomberg.net, Richard Bravo, Nikos Chrysoloras

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