Rules facilitating digital trade, including the cross-border transfer of data on customers and supply chains, were expected to be a centerpiece of what is called the Indo-Pacific Economic Framework, or IPEF, a U.S.-led group of 14 nations. But the U.S. recently withdrew its support for those provisions, a decision that cut against the desires of some Asian allies who see common rules governing business data as a cornerstone building block for economic cooperation.

The move has also angered U.S. business groups who favor the free flow of data to boost the digital economy. More than 40 business groups wrote to top administration officials last week saying the U.S. retreat on digital trade signals to U.S. trading partners that the Biden administration won’t defend American companies against data restrictions that impede their businesses, and would allow autocratic governments like China to set the rules of engagement.

“It will advance the interests of our adversaries,” said signatories including the U.S. Chamber of Commerce, the National Association of Manufacturers, the Securities Industry & Financial Markets Association, as well as the Motion Picture Association.

Free cross-border flows of data allow companies in technology, manufacturing and finance to easily access supply-chain and customer data, lowering costs. American entertainment companies and videogame makers would also benefit from stronger protection of their digital products overseas.

The Biden administration hoped to use this week’s gathering of Asia-Pacific officials to deliver progress in the IPEF program, which the U.S. launched last year to strengthen economic and trade ties with friendly nations as a counterweight to China’s influence in the region. The IPEF ministers are expected to meet Monday and Tuesday in San Francisco, ahead of a summit meeting between President Biden and Chinese leader Xi Jinping scheduled Wednesday. Both meetings will take place on the sidelines of the gathering of Asia-Pacific Economic Cooperation nations, another group that includes China and Russia.

The administration is expected to announce new agreements with IPEF members to boost cooperation on supply chains, clean energy and combating corruption and tax evasion. But no progress will be coming on key trade provisions, including digital economy rules and labor standards, according to lawmakers and other people familiar with the discussions. Raising the bar for a trade agreement, Sen. Sherrod Brown (D., Ohio), who is facing a tough election next year, demanded last week the administration include enforceable standards for labor conditions in developing Asian nations to protect American workers, according to people familiar with the matter.

Washington’s retreat from the digital trade provisions is expected to make the IPEF less attractive for some member countries already frustrated with the U.S.’s disengagement from traditional trade liberalization measures, such as tariff cuts, that allow them to sell more in the U.S. and other markets.

“If possible, we would like to see market access and trade liberalization,” said Singapore Deputy Prime Minister Lawrence Wong during a recent trip to Washington. “But I think it is very hard to talk about these things under current circumstances in the U.S. domestic politics.”

At a Group of Seven trade ministers’ gathering on Oct. 29, Japanese Trade Minister Yasutoshi Nishimura called for digital trade rules to allow “data free flow with trust” and backed measures to punish countries whose policies “unjustifiably” force businesses to store data locally.

At the heart of the disagreements is a set of complex rules that cover cross-border transfer of data and some digital products. One provision shelved by the U.S. would have had the IPEF countries commit to allow the movement of customers’ data, supply-chain information and other data across borders. Others could have barred governments’ access to some company-owned software “source” code, or prevented countries from discriminating against digital media in favor of physical copies of movies or videogames.

Biden administration officials say the U.S. first needs to determine domestic policies for regulating the tech industry before entering new international agreements.

“Many countries, including the United States, are examining their approaches to data and source code, and the impact of trade rules in these areas,” a spokesman for the Office of the U.S. Trade Representative said last month, after the U.S. pulled out of negotiations on similar digital trade rules at the World Trade Organization. “To provide enough policy space for those debates to unfold, the United States has removed its support for proposals that might prejudice or hinder those domestic policy considerations.”

The administration has been under pressure from progressive Democratic lawmakers led by Sen. Elizabeth Warren of Massachusetts, who see laissez-faire digital trade rules as running counter to the U.S.’s continuing domestic effort to rein in tech giants, including privacy protection and regulation of artificial intelligence. Federal antimonopoly lawsuits are also pending against Google, Amazon.com and Facebook parent Meta Platforms.

Earlier this year, U.S. Trade Representative Katherine Tai began signaling her sympathy for those views. “Healthy competition is key not only to maintaining vibrancy and innovation in our economy but also to promoting democracy,” she said in a June speech. “Trade policy has an important role to play in this regard.”

Write to Yuka Hayashi at [email protected]