Written Testimony

The Information Technology and Innovation Foundation (ITIF) is an independent 501(c)(3) nonprofit, nonpartisan research and educational institute that has been recognized repeatedly as the world’s leading think tank for science and technology policy. ITIF is honored to testify before the House Ways and Means Trade Subcommittee on “Advancing America’s Interests at the World Trade Organization’s (WTO) 14th Ministerial Conference.”

While the United States under the Trump administration has preferred to pursue bilateral as opposed to multilateral or plurilateral trade deals, and while the World Trade Organization no longer plays as significant a role as it did previously in global trade—notably concerning dispute settlement resolution, as the WTO Appellate Body has been inactive since 2019—the forum remains a very significant institution in the global trade system. The WTO remains an important platform for the development and dissemination of high-standard trade rules, especially with regard to digital trade and intellectual property (IP) rules; a vehicle for powerful plurilateral trade agreements among like-minded countries, such as the Information Technology Agreement (ITA); a key asset for monitoring countries’ compliance with their trade agreement commitments; a source of research and knowledge regarding global trade activity; and as a knowledge source that provides technical capacity helping countries throughout the world adopt effective trading and customs practices.

While the United States should continue to seek WTO reforms, it should also continue to view the WTO as a vital component of a rules-based international trade system positioned to develop trade rules that advance U.S. interests. The WTO includes 166 members, together accounting for 98 percent of world trade, so it remains the only global forum where the United States can shape the rules governing the global marketplaces on which its advanced-technology industries depend. At the 14th WTO Ministerial Conference in Yaoundé, Cameroon, the United States has important equities in: sustaining the WTO e-commerce customs duty moratorium; advancing the WTO Joint Statement Initiative (JSI) on e-commerce; continuing to advocate for high-standard global intellectual property rules; and promoting WTO reforms, especially to better address the “innovation mercantilist” policies practiced by countries such as China that have significantly disrupted the rules-based international trade system.

Multilateral trade rules can be beneficial for the United States. Viewing trade solely as a calculation of imports and exports with U.S. trade partners provides an incomplete picture. Some of America’s largest and most significant companies benefit when third-party countries trade with each other because they use U.S. standards, software, and technologies, and because they indirectly reduce trade barriers for U.S. companies. Ultimately, when third countries lower barriers to entry for American businesses, it benefits the United States in terms of profits and, importantly, in reinvestment of those profits into ongoing research and development (R&D) activity that helps maintain U.S. advanced-technology leadership.

The U.S.—and global economy—is becoming increasingly digital.[1] For instance, the digital economy now accounts for nearly 25 percent of global gross domestic product (GDP).[2] Moreover, 75 percent of the value added by data flows over the Internet accrues within traditional industries—such as agriculture, finance, or manufacturing—meaning that all industries within a nation have a vital stake in digitalization.[3] Developed and developing nations alike benefit from greater penetration of information and communications technology (ICT) and services in their nations. For instance, a comprehensive review of econometric literature by Cardona, Kretschmer, and Strobel finds that, on average, an increase in a nation’s ICT capital stock of 1 percent leads to a 0.06 percent increase in a country’s GDP.[4] This is one reason why the WTO’s Information Technology Agreement (ITA)—by eliminating tariffs on trade in hundreds of ICT goods, thus decreasing their prices and increasing their consumption (through elasticity effects)—has played such a critical role in increasing global consumption of productivity- and innovation-enhancing ICT products that have underpinned the mobile technologies, data centers, and artificial intelligence (AI), IoT, and robotics applications that are turbocharging the global digital economy.

In 2024, the value of global digital trade reached $7.23 trillion, a nearly 60 percent increase from the $4.59 trillion value it tallied in 2020, representing about a 12 percent average annual increase, outpacing physical trade growth.[5] Digital transactions account for 22 percent of international trade today.[6] This increasing digitalization of trade explains why a 2018 Organization for Economic Cooperation and Development (OECD) report notes that digitalization is linked with greater trade openness, selling more products to more markets, and that a 10 percent increase in bilateral digital connectivity increased trade in services by over 3.1 percent.[7] Yet the opposite is also true: nations that restrict digital trade flows through policies such as cross-border data flow barriers or data localization policies retard the growth of their digital economies. This explains why ITIF finds that a 1-point increase in a nation’s data restrictiveness cuts its gross trade output by 7 percent, slows its productivity by 2.9 percent, and hikes downstream prices by 1.5 percent over five years.[8] Unfortunately, the number of data-localization measures in force around the world has continued to increase. For instance, ITIF found that from 2027 to 2021 alone the number of data localization policies doubled globally. In 2017, 35 countries had implemented 67 such barriers; as of 2021, 62 countries had imposed 144 restrictions, with dozens more under consideration.[9]

E-commerce—the buying and selling of goods, services, or data exclusively over the Internet—represents a critical facet of global trade. Analysts estimate the global e-commerce market will experience tremendous growth over this decade, with Grand View Research estimating the market will grow from $29 trillion in 2024 to $83.3 trillion by 2030.[10]

Recognizing that e-commerce would become an ever-more significant driver of global economic growth, WTO members have, for over a quarter-century, maintained a moratorium on cross-border electronic transmissions customs duties (i.e., duties on digital products).[11] This WTO Moratorium on Customs Duties on Electronic Transmissions ensures digital trade can flow freely across borders—without tariffs, without red tape, and without added cost.[12] Since 1998, WTO member countries have periodically agreed to renew the moratorium every two years, and the moratorium is up for renewal again at the 14th WTO ministerial. The United States should make renewal of the moratorium its foremost priority in Yaoundé, and even push for making the moratorium permanent.

The e-commerce moratorium matters because U.S. export strength increasingly lies in digital products and services whose delivery depends on tariff-free transmission. America enjoys a trade surplus of $266.8 billion in digitally deliverable services (for 2023, last data available) and a surplus of $339.5 billion in services overall (for 2025).[13] If the moratorium expires, U.S. firms would face new tariff risk in the aspect of trade where America is strongest, because digitally enabled services accounted for 64 percent of all U.S. services exports in 2023.[14]

Moreover, OECD analysis finds that if countries applied existing tariffs on digital services, high-income countries’ exports would fall by about 0.5 percent, implying a measurable drag on U.S. digital exports, even if the average effect looks small.[15] The OECD also finds that tariffs on electronic transmissions are associated with lower output and productivity and that their burden falls mainly on domestic consumers, not foreign firms. Finally, allowing the moratorium to lapse would add uncertainty as well as tariffs, and the OECD estimates that a 1 percentage-point increase in trade policy uncertainty reduces trade in digitisable goods by roughly 0.17 to 0.2 percent. This data shows the importance of maintaining (if not making permanent) the WTO e-commerce customs duty moratorium.

But the United States can go further in Yaoundé by formally joining the WTO’s Joint Statement Initiative on E-commerce, reversing a decision made by the Biden administration’s United States Trade Representative’s Office (USTR) in October 2023 to withdraw the United States from the negotiations. The agreement, which over 90 nations are now involved in developing, includes many of the digital rules that the United States has already committed to in the United States-Mexico-Canada (USMCA) free trade agreement. These include promoting cross-border data flows, prohibiting data localization (i.e., prohibiting policies that require data storage within a country), and protecting source code from forced disclosure.[16]

Most importantly, many of the rules included in the JSI are the same digital norms that the Trump administration—correctly—is urging trade partners to adopt, because cross-border digital friction disproportionally affects the United States economy. For example, the trade agreement the Trump administration signed with Malaysia includes cross-border data transfer commitments, support for a permanent WTO e-commerce moratorium, and a pledge not to impose digital services taxes on U.S. firms.[17] USTR’s agreement with South Korea includes protections against discrimination targeting U.S. digital services, commitments to facilitate cross-border data flows, and support for a permanent WTO moratorium on customs duties on electronic transmissions.[18] And the agreement with the United Kingdom explicitly commits both sides to negotiate high-standard digital trade provisions while pressing London to address its discriminatory digital services tax.[19] Moreover, when the United States officially withdrew its support for the JSI, it left room for China and the European Union to assume a greater role in shaping global digital trade rules. Returning to JSI negotiations would amplify America’s ability to shape global digital trade rules in its interest.

At the 14th WTO Ministerial, the United States should reaffirm its support for the Information Technology Agreement, a WTO plurilateral agreement that eliminates tariffs on trade in hundreds of ICT products among over 80 nations (in the original ITA; over 50 nations agreed in 2015 to expand the agreement with 201 more products).[20] The ITA has been one of the most successful plurilateral trade agreements the WTO has ever concluded and it has played a catalytic role in fostering the growth of the global digital economy. A 2023 ITIF study estimated that expanding the ITA could help grow U.S. GDP by $208 billion over a decade, increase U.S. exports of ICT products by $2.8 billion, and help create almost 60,000 U.S. jobs.[21] It’s true that some of the tariffs implemented by the Trump administration mean the United States is no longer fully compliant with its ITA commitments. Nevertheless, the United States has benefited tremendously from the ITA, especially as U.S. ICT companies and workers have profited from the dramatic expansion of international trade and consumption of ITA goods it has engendered.[22] The United States should continue to support—if not take the lead to actively expand—the ITA.

Indeed, the reality is that the ITA has been highly successful. For that reason, ITIF has called on the Trump administration to spearhead the creation of a WTO “Innovation Trade Agreement” that would commit nations to eliminate tariffs on trade in a suite of the world’s most important advanced-technology products. This would include goods in the ITA Agreement, those in the so-called “Zero for Zero” Pharmaceutical Tariff Elimination Agreement, and goods envisioned in the proposed WTO Environmental Goods Agreement.

While analysts don’t expect intellectual property rules to be a major focus of discussions in Yaoundé, the Ministerial nevertheless provides an opportunity for the United States to continue to advocate for robust IP rights and protections for U.S. entities in international settings. That’s particularly true in the wake of the misguided and unnecessary WTO TRIPS (Trade-related Aspects of Intellectual Property Rights) COVID-19 IP waiver, acceded to by the Biden administration.

Yet the reality is that IP was never the central challenge in enabling global society to address the COVID-19 pandemic (or other pandemics or health emergencies that may occur in the future). In fact, the original COVID-19 TRIPS waiver petition actually acknowledges this, admitting that, “To date, there is no vaccine or medicine to effectively prevent or treat COVID-19.”[23] Yet, although no vaccines or therapeutics even existed to combat the virus, IP was already somehow a problem for some global health advocates. (Indeed, why was there any kind of need to waive IP rights for technologies and innovations that didn’t even exist?) It shows that if IP were ever a problem in the COVID-19 pandemic, it was only that society had yet to invent the knowledge, technology, and know-how—that is, the IP—to confront the malady.[24] Moreover, even after the vaccine waiver was agreed to, not a single country, company, or entity has notified the WTO of any intent to avail itself of the vaccine waiver’s provisions, reiterating the futility of the waiver.[25] In short, far from being a barrier to access to innovations such as medicines or clean energy technologies, intellectual property rights are a foundational enabler of their very existence.

The international trading system, initially embodied in the General Agreement on Tariffs and Trade (GATT) and subsequently in the WTO, delivered significant liberalization of global trade. In fact, the median global tariff rate declined from 26 percent in 1980 to less than 7 percent by 2013.[26] But while the international trade community has made great strides in removing tariff-based barriers to global trade over the past three decades, in many cases, countries have surreptitiously complemented their reduction by erecting new types of trade-distorting nontariff barriers (NTBs), such as localization requirements. Unfortunately, such non-tariff measures are almost twice as trade-restrictive as tariffs.[27] And their use continues to grow. According to a 2022 United Nations Conference on Trade and Development report, technical nontariff trade measures, such as technical barriers to trade (TBTs), now affect more than 30 percent of product lines and almost 70 percent of world trade.[28]

China is undoubtedly the leading global practitioner of what ITIF calls “innovation mercantilist”—economic and trade policies such as massive industrialization subsidization, IP theft, forced IP or tech transfer requirements, forced local production as a condition of market access, currency or standards manipulation, etc.[29] Unfortunately, the entry of a nation into the WTO that unrepentantly pursues mercantilist trade and economic policies that are directly antithetical to the WTO’s fundamental principles of market-oriented policies enacted on the basis of national treatment, reciprocity, and non-discrimination foundationally challenges this system, especially when it has become the world’s largest trader and second-largest economy.[30] Indeed, the WTO trade regime was not conceived under the idea that some nations would be power traders.

A particular area of WTO reform the United States should advance thinking on at the 14th WTO Ministerial is subsidies reform, especially in the face of China’s massive use of industrial subsidies. For instance, China has plowed over $230 billion of subsidies into its electric vehicle/battery industry.[31] It’s funneled at least $150 billion into its semiconductor industry.[32] A study from the Kiel Institute for the World Economy finds that over 99 percent of a sample of 5,260 listed Chinese firms received government subsidies totaling €35.3 billion in 2022, double the amount from 2015.[33] As ITIF has written, China-induced overcapacity has seriously harmed U.S. interests not only in heavy-capital goods industries such as steel and aluminum, shipbuilding, and heavy construction equipment, but also in advanced-technology industries ranging from solar panels and semiconductors to telecommunications networking equipment, where the United States should enjoy a natural comparative advantage.[34]

China’s massive industrial subsidies are significantly upsetting the economics of innovation across dozens of advanced-technology industries, to the significant detriment of American firms. Accordingly, the United States should work with like-minded nations and at the WTO to update its rules to impose much stiffer conditions on, and penalties for, aggressive industrial subsidization.[35] This should start by clarifying the definition of a “public body” and extending it to include state-influenced activities by entities such as state-owned enterprises (SOEs) and private firms.[36] Rules should require the subsidizing country to demonstrate that a given subsidy does not harm others. Like-minded nations should focus on achieving a significant increase in global subsidy transparency, including insisting on timely and complete notification of subsidies and establishing a presumption of prejudice against subsidies not timely notified.[37] (Indeed, as the United States has explained in the WTO General Council, “WTO Membership is a privilege that also includes notification obligations that all Members agreed to as a condition of Membership.”)[38] Such countries should also designate an annual meeting between WTO members and the WTO appellate body to discuss patterns and challenges pertaining to excessive use of subsidies.

Another area to reform is the most-favored-nation (MFN) principle, which has clearly been compromised. Strict MFN rules are inadequate when dealing with non-market economies such as China. Simply put, the WTO is meant for market-driven economies that actively follow its fundamental principles and clear obligations; if China chooses to develop an alternative economic system that does not align with existing multilateral rules, then it shouldn’t be part of the WTO—or at least it shouldn’t receive the same benefits as countries that adhere to agreed-upon rules.[39] ITIF commends the U.S. International Trade Commission for launching a new fact-finding investigation into the effects of revoking permanent normal trade relations (PNTR) treatment for all of China’s products. The United States could revert to applying MFN on an annual basis with “conditional” elements, for instance, linking it to labor rights, intellectual property, and environmental standards.

Finally, regarding other important matters to be discussed at the 14th WTO Ministerial Conference, the United States should uphold the market principles that are central to the U.S. economy and embedded in WTO rules. The Office of the U.S. Trade Representative is initiating Section 301 investigations that will highlight, for example, trade partners’ overcapacity resulting from non-market policies.[40] The United States should use MC14 to push for a WTO that actively promotes fair market competition—not one that passively accepts non-market policies, overcapacity, and coercive distortions that are undermining the global trading system.

Endnotes