When US President Donald Trump and Chinese President Xi Jinping meet at Mar-a-Lago on April 6–7, the talks will span a vast array of economic, diplomatic, and security issues. Laying the groundwork for a future US-China digital agenda should be given top priority, not least from the reality that policies and practices concerning the internet and cross-border data flows ultimately sweep in trade and investment policies; privacy and surveillance; and national security, including espionage, cyberattacks, and ultimately the potential for cyberwarfare.
The internet and the digital world really came of age during the Obama administration, and President Barack Obama began the complex task of formulating and executing a US strategy for emerging digital strategic challenges — including challenges from China. Trump must build on this legacy, and the April summit presents a timely and strategic opportunity to advance the US agenda — and to place a Trump stamp on US cyber policies.
The meeting is also timely in that just this month, Beijing published its first official paper on cyber policy. In the paper (0), China pledged to “encourage the international community to discuss the peaceful nature of cyberspace and the application of international law in cyberspace.” But in the usual code language for tight claims of sovereignty, the paper also stated: “Countries should respect each other’s right to choose their own path of cyber development model of cyber regulation, and Internet public policies. . . . No country should pursue cyber hegemony, interfere in other countries’ internal affairs, or engage in. . . . cyber activities that undermine countries’ national security.” Chinese officials further explained unabashedly that China will (1) “encourage and support Chinese Internet companies, together with those in the manufacturing, financial, and ICT sectors to take the lead in going global.”
While not couched in belligerent tones, this first public Chinese internet policy document — and the elucidation of that statement by Chinese officials — makes it clear that Beijing intends to continue and even augment internal and external policies that are making it increasingly difficult for foreign companies to compete in China’s domestic market, and against Chinese state-owned enterprises (SOEs) around the world. Given that reality, what follows is a suggested agenda of top cyber policies to be advanced during the meetings — either during the principals’ deliberations or in the accompanying discussion among top aides.
Continuity: Retaining and upgrading the US-China cyber dialogue
This dialogue was established pursuant to the Obama-Xi meeting in September 2015. The main focus of the charter was cybercrime, but it also includes broader cyber issues such as network protection and using the internet for terrorist activities. For the US, it is chaired by the attorney general and the secretary of homeland security, and China’s representative is the Chinese minister of public security. It is easy to criticize the results thus far as much talk and little action. But as the two nations move into a period of difficult, if not intractable, challenges to their individual domestic cyber policies, the existence of a formal mechanism and process (2) for continuing consultation, if not agreement, is of vital significance.
Intellectual property and the Obama-Xi September 2015 agreement
Under this agreement, the US and China pledged that (3) “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets . . . with the intent of providing competitive advantages to companies or commercial sectors.” The Obama administration and most cybersecurity observers believe that China has lived up to that pledge, with a substantial downturn in intellectual property (IP)-related hacking activity (although Beijing has continued to deepen its technical capabilities in this area). Trump (who has railed against IP theft “rape (4)” by China) should directly raise the September 2015 agreement with Xi, making it clear that US intelligence agencies would continue to monitor Chinese hacking activities closely and that the US would not hesitate to retaliate should IP hacking theft resume.
Chinese censorship: The “Great Firewall” and the World Trade Organization
In an AEI paper (5) and in blog posts (6) over the past year, I have argued that the time is long overdue for the US to challenge China’s Great Firewall of censorship in the World Trade Organization (WTO). In the past year, China has blocked eight of the world’s 25 most trafficked websites, including the venues of US firms such as Google, Facebook, Twitter, YouTube, and the pages of The New York Times. As several analyses have demonstrated, while hiding behind the WTO exceptions for protecting public morals and order, the Chinese government has consistently used the rules as a means of advancing industrial policy, as well as Chinese firms that compete with the excluded foreign firms. The WTO judicial bodies have indicated recently that they would not allow the public morals/order exception to be used as covers for covert protection. While there is no certainty of victory, the US — and other WTO members — should mount a direct WTO challenge to China’s Great Firewall. At the summit, Trump and his advisers should warn Xi that such a case will come quickly if Beijing does not back away from this cyber discrimination and violation of the WTO principle of national treatment.
Reciprocity for investment
Recently, a task force of the Asia Society — composed of moderate trade and China specialists — echoed my own policy brief (7) decrying the deteriorating position of US high-tech companies in the Chinese market. The group pointed to a number of discriminatory policies (8) — subsidies, favoritism for SOEs, and investment bans — that “particularly affect a large number of new economy sectors that China seeks to indigenize, ranging from semiconductor design and manufacturing and advanced manufacturing to the entirety of the information technology and communications sector.” The task force also concluded, as I had recommended earlier, that: “the Trump administration should demand reciprocal treatment for US outward investment in China.” Furthermore, “the administration should clearly inform Beijing that the United States may have to restrict or condition inbound Chinese investments . . . until reciprocal restrictions are removed on US investment in China.” Whatever the understandable desire for a “favorable” outcome of the summit, the president and his aides should not shy away from advancing this potential outcome, absent a change in Chinese policy toward American and other foreign high-tech companies.
The Chinese national security and cybersecurity laws
Passed over the past two years, the two laws can potentially have dramatic consequences for foreign firms operating in the Chinese market. The language in both laws is sweeping and vague: the scope and definition of national security include military, economic, and political institutions, energy, space, and the internet, as examples. So-called “national security reviews” include projects and investments far beyond traditional security definitions. The aim is clearly stated (9): to ensure that all technologies are “secure and controllable.” The phrase has been widely thought to provide the basis for potential demands to install backdoors or to provide source codes or encryption keys. Further, the cybersecurity law mandates that internet companies provide “support and assistance” to the government in matters of criminal activity and national security. For the past two years, Chinese officials have declined to provide implementation details. There are two points that the Trump administration should make next week or in follow-on negotiations: first, renew the Obama administration’s request that the government define the exact reach of the legislation; and second, warn Beijing that should provisions of these laws be used as a pretext to exclude competition, the US will retaliate, and, as noted above, introduce strict reciprocity for Chinese firms operating in this country.
Digital trade and the US-China bilateral investment treaty
It is uncertain, although likely, that the two sides will pledge to attempt to complete the ongoing bilateral investment treaty (BIT) negotiations. (The more draconian potential Trump demands on the bilateral trade balance are beyond the purview of this blog). The view here is that the prospects for a successful BIT in the near future are not great. Despite that the head of the People’s Bank of China has recently promised to open more financial sectors (10) (insurance, banks, and financial securities) to foreign investment, there is no sign that Beijing is ready to agree to a “negative list” in investment: that is, opening all sectors except those specifically excluded. Still, either through means of the BIT negotiations or through the proposal for a separate bilateral agreement, the Trump administration should take the opportunity to place a bilateral digital trade agenda on the table. And here, although the president has scorned the Trans-Pacific Partnership (TPP) agreement, members of his trade team have spoken highly (11) of the e-commerce section of the TPP. Next week’s discussions would be an ideal time to table the TPP digital provisions as the basis for future talks and negotiations.
The agenda set forth above is well beyond what can be accomplished in the short timespan allotted to the first formal Trump-Xi meeting. But it does lay out a set of options for the Trump administration as it moves to place its own stamp on US digital trade policy and priorities.