WASHINGTON – Rep. Erik Paulsen, R-Minn., supported the 12-nation Trans-Pacific Partnership (TPP) trade agreement for a number of reasons. But one of the most important was the precedent TPP set for digital trade among nations.
TPP set rules guaranteeing the free flow of data among participating countries, taking away protectionist policies such as forcing foreign trading partners to store digital data in the country where they want to do business. TPP also set parameters for cyber security and access to information stored on computer servers.
Now that President Donald Trump has withdrawn America from TPP, Paulsen and others in Congress’ digital trade caucus are pushing renegotiation of the North American Free Trade Agreement (NAFTA) as the vehicle to break through what they see as business-killing roadblocks on the information super highway.
“This is not a small or niche part of the economy,” Paulsen said. “Digital trade accounts now for more than half of all U.S. service exports.
“All the great gains in digital trade that were made as a part of TPP obviously aren’t going forward. We need to expand on that in NAFTA now and set a precedent for future agreements.”
China and Russia, and to a lesser degree Vietnam, South Korea and Malaysia, have been among the world leaders in constructing barriers to digital trade, according to Nigel Cory, who studies international digital trade at the Information Technology & Innovation Foundation (ITIF). The idea behind local data storage and management requirements is to make it so hard for foreign companies to do digital business in your country that they simply stop trying, Cory said. Supporters of such policies believe this cedes the digital gold mine to domestic businesses.
Politics may also complicate matters. LinkedIn, an online networking community focused on jobs, ran afoul of the Russians when it refused to comply with a 2014 law that required LinkedIn to store the personal data of Russian members on internet servers inside Russia. Critics felt the move was an attempt by the government to monitor citizens and stifle political opposition. In November 2016, the Russian government shut down its citizens’ access to LinkedIn.
Protectionist policies may produce a downscale, local version of LinkedIn, Amazon, eBay or IBM Cloud, Cory said, but driving away foreign trading partners eventually produces a “massive drag on productivity and costs” that overwhelms any short-term gains.
Especially in the realm of cybersecurity, small local companies “will not have the resources or expertise to thwart the latest kinds of cyberattacks,” he said.
Trade agreements that share resources make better sense, no matter where the data resides, Cory believes. “A secure server in Mexico [can be] the exact same as a secure server in the U.S.,” he said.
Some privacy advocates express concerns about protection of personal data. The Electronic Frontier Foundation (EFF) defends “civil liberties in the digital world.” Jeremy Malcolm, EFF’s senior global policy analyst, said forcing data localization can cause “a ‘splinternet’ of national networks.” But he added, “We don’t think that trade agreements should be used to prohibit measures that are taken to protect individual privacy.”
Nor does the group endorse expanded copyright and intellectual property protections in trade agreements because they often enrich big businesses at the expense of entrepreneurs who might develop even better technologies.
What cannot be argued is the rise of the web in the commerce of companies of all sizes. The Boston Trading Group, a consulting firm, estimated the 2016 economic impact of the internet on the world’s 20 major economies at $4.2 trillion, the equivalent of the world’s fifth largest economy.
In 2016, the McKinsey Global Institute, a consultancy, reported that “digital flows — which were practically nonexistent just 15 years ago — now exert a larger impact on GDP growth than the centuries-old trade in goods.”
In 2016, Minnesota ranked 13th in the country with $3.4 billion in tech exports that supported more than 45,000 tech jobs in the state, according to the Computing Technology Industry Association (CompTIA), a trade group.
The numbers could be better nationally if countries reduced their barriers to digital trade, Brookings Institution trade specialist Joshua Meltzer wrote recently.
Barriers, according to the nonpartisan Congressional Research Service, include “localization requirements, cross-border data flow limitations, intellectual property rights infringement, unique standards or burdensome testing, filtering or blocking, and cybercrime exposure or state-directed theft of trade secrets.”
“This is our opportunity to put in place clear rules on data,” said Stefanie Holland, a director at CompTIA. “This is an area that touches every [business] sector. ”
Asked about the White House commitment to digital trade, a Trump administration spokeswoman pointed to recently announced objectives in NAFTA renegotiation with Mexico and Canada. Digital trade was listed among more than 20 objectives.
The White House has said it planned to secure commitments to avoid customs duties on digital products; ensure “nondiscriminatory treatment of digital products”; establish rules to ensure that NAFTA countries do not restrict cross-border data flows and do not require the use of local computing facilities; and establish rules to prevent governments from mandating the disclosure of computer source code.
Cory said the White House must make digital trade a high priority among its trade goals.
“The main trade rules for goods and services were written in the 1990s,” Cory said. “They don’t even mention the internet.”
The U.S. enjoys an international trade surplus in digitally deliverable services. But digital trade barriers have been growing.
“The rules in TPP would have set a new global norm,” he maintained. “We’ll see where digital trade ranks with the Trump administration in NAFTA.”
Access to digital data by law enforcement, another flash point in digital trade, has rendered decisions on both sides of the judicial spectrum. Microsoft received a favorable appeals court ruling that kept the U.S. Justice Department from gaining access to e-mails Microsoft stored on a server in Ireland. The government has appealed that case to a higher court. Meanwhile, a federal magistrate judge ruled against Google in a case where it argued that the Justice Department should not have access to e-mails that Google stores and moves from country to country based on efficiency.
Despite the complexities, international cooperation in keeping the flow of digital information moving is still the best way to address trust issues, Paulsen believes.
“The average small business person now has an e-commerce account and sells to customers overseas,” the congressman said. Businesses large or small do not want “onerous regulations or outright prohibitions” from foreign markets.
“We want to make sure that they can use the digital services that are contributing to the health of their bottom lines,” Paulsen said, “and that there is no discrimination.”