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U.S. Should Stand Up to Discriminatory Legislation in Dialogue with Korea 

As the Biden administration prepares to strengthen trade and investment ties through the 8th U.S.-Korea Senior Economic Dialogue, a key question looms: will the U.S. government back away from another opportunity to maintain open markets for digital trade? 

On the eve of the U.S.-Korea bilateral, there is considerable risk that Korea may craft regulatory obligations tailor-made to keep U.S. firms out of the Korean market. The Korea Fair Trade Commission seems to be rushing to enact legislation that, by all accounts, would discriminate against innovative U.S. exporters, harm competition in Korea, and enable Chinese competitors to gain a stronger foothold in the Pacific Rim.    

Some contend the legislation will emulate the Digital Markets Act (DMA), a European regulatory experiment aimed at protecting legacy businesses from the success achieved by U.S. digital companies. Such policies typically invite scrutiny, and even challenge, for seeking to unjustifiably target and hobble foreign suppliers. While gerrymandering rules to disadvantage foreign firms and protect local suppliers would typically be fought as a trade violation, the Biden USTR has recently turned a blind eye to some such policies under pressure from a small but vocal cadre of policymakers in Washington who would like to see similar measures in the United States.

At the World Trade Organization in October, U.S. Trade Representative (USTR) Katherine Tai surprised observers by announcing that the U.S. would no longer oppose barriers to the free flow of data across borders, or mandates to store and process data locally — practices which fundamentally undermine digital services trade.  

The response from the U.S. Senate, however, was swift and unequivocal.  A third of the body wrote Biden, saying that the Administration’s position “does not help U.S. consumers, it does not help U.S. businesses, and it does not help U.S. allies; it only helps our adversaries.”

To a neutral observer, the approach of gerrymandering elaborate new regulatory obligations around a handful of firms might appear strange. If proposed new regulations truly protect consumers’ welfare, why do the majority of players in the market not have to meet these obligations? This strategy only makes sense when understood not as consumer protection, but as a means of giving local competition a leg up on American firms.  

If the Biden Administration is serious about growing U.S. trading opportunities and the jobs that come with them, it needs to insist on adequate transparency and cooperation from trading partners that consider proposals such as the Korean legislation. U.S. diplomats should expect their counterparts to produce text, engage with relevant stakeholders at home and abroad, and otherwise follow normal procedures.

The upcoming Dialogue provides a critical opportunity for U.S. officials to emphasize that they expect Korean counterparts to meet their trade commitments, rather than rushing legislation that discriminates against Korea’s closest ally.  

For its part, the Korean government should heed the calls to produce the text and consult with U.S. stakeholders in order to ensure consistency with bilateral obligations. Doing so is not just good for business; it advances shared security interests.

Digital Trade

Companies rely on clear, predictable rules that facilitate digital trade to export their products and services around the world. These rules include balancing the competing interests between encouraging investment and enabling information access; promoting the free flow of information online; and maintaining balanced intermediary liability regimes.