Digital commerce and trade are increasingly important to the global economy. Seven of the ten most valuable firms today are technology companies (Apple, Alphabet, Microsoft, Amazon, Facebook, Alibaba, and Tencent). Data, according to some analysts, is the new oil. A major study concluded that the internet has powered some one-fifth of recent economic growth within the leading economies. Jobs are increasingly dependent on digitization; digital skills are needed for all but two job categories [PDF] in the United States: dishwashing and food cooking.
Just as national economies are becoming more digitized, barriers to digital trade are being erected. These barriers limit opportunities for consumers to access global providers and for small- and medium-sized enterprises to reach new customers. It is not only technology firms that suffer; all enterprises with international operations need cross-border data flows to process, analyze, and transfer data about employees, customers, and operations. Global supply chains depend on the flow of goods, data, and services across borders. Moreover, commitment to the free flow of information across borders is essential to freedom of expression. Digital trade is about more than access to markets; it is about access to information.
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The renegotiation of the North American Free Trade Agreement (NAFTA) is an excellent opportunity to set the gold standard for digital free trade. Despite public pronouncements about the harm free trade causes to the steel and automobile industries, the Donald J. Trump administration, to its credit, recognizes the importance of removing digital trade barriers in its stated objectives for the NAFTA renegotiation [PDF]. In its negotiations with Canada and Mexico, the Trump administration should seek rules limiting data localization, promote a balanced approach to intellectual property protections, support cross-border privacy rules, and remove barriers that hinder the trade of services.
Liberalizing the Digital Economy
Many of the efforts to liberalize the digital economy predate the first NAFTA negotiations, which concluded in 1992. In 1995, the World Trade Organization’s General Agreement on Trade in Services committed many states to liberalize trade in services, including many database and computer services. In 2001, the United States began including digital issues in its bilateral trade agreements with a nonbinding commitment in its agreement with Jordan, and then included binding e-commerce chapters in every subsequent agreement.
Notwithstanding these early liberalization efforts, a growing number of governments claim that the free flow of data inordinately benefits U.S. tech companies and that digital trade barriers could help foster domestic innovation and the growth of national companies. For example, Australia, China, some Canadian provinces, the European Union, Nigeria, and Russia all have variations of what have become known as data localization laws, which either require the use of local computing facilities or keep data from being transferred abroad in certain instances. In the wake of Edward Snowden’s revelation of the United States’ widespread digital surveillance programs, these countries often also justify data localization laws based on concerns over privacy and national security.