Trade Compliance

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Digital Trade in North America

Posted January 05, 2018

Although negotiations on modernizing the North American Free trade Agreement are currently deadlocked over a wide range of contentious issues, discussions over a new set of provisions covering cross-border data flows – commonly referred to as digital trade – is one of the areas where the three countries appear to have found common ground, with officials saying they have been making “solid progress” and “meaningful advances” on this front.

Ahead of the talks entering what could be a final make or break phase later this month, the U.S. Department of Commerce’s Office of Policy and Strategic Planning today released a new report “to inform policymakers, business leaders, and others” about the current state of America’s digital trade with Canada and Mexico.

Noting that U.S. digital trade cannot be specifically identified because official trade statistics don’t currently monitor the delivery mode of services, the report draws most of its insights from estimates published by department’s Bureau of Economic Analysis (BEA) concerning the international trade of information and communications technology (ICT) services and “potentially” ICT-enabled (PICTE) services, which are services that can be traded remotely using the internet or some other digital network.

Among the insights on how digital trade impacts the U.S. economy, the report shows that in 2016:

  • PICTE services accounted for 54% of all U.S. services exports, 48 % of all services imports, and 64% of the trade in services surplus.
  • U.S. PICTE services exports to Canada totaled $27.8 billion, or 52 % of all U.S. services exports to Canada and 7% of total
  • U.S. PICTE exports to all trading partners. The United States imported $13.9 billion in PICTE services from Canada, equal to 46% of all services imports from Canada and 6% of total PICTE services imports.
  • U.S. PICTE service exports to Mexico totaled $8.8 billion, or 27% of all U.S. services exports to Mexico and 2% of total.
  • U.S. PICTE exports to all trading partners. The United States imported $4.8 billion in PICTE from Mexico, equal to 19% of all services imports from Mexico and 2% of total PICTE services imports.
  • U.S. PICTE services exports to Canada increased at an average annual rate of 4% from 2006 to 2016. The growth of U.S. exports of these services to Mexico was even faster, at 5.5 %.

Additionally, the report states “there is evidence that multinational firms are exchanging data and information across North America. Canadian and Mexican affiliates of U.S. multinationals rely on data flows to carry out business operations, as well as for a wide variety of additional uses.”

While details of the new NAFTA chapter covering digital trade have not been made public, all three countries agreed to use guidelines laid out in the Trans-Pacific Partnership (TPP) — the first trade agreement to include binding language on information flows — as a starting point.

For reference, the TPP’s groundbreaking e-commerce chapter included the following new rules and mandates (among others):

  • Cross-Border Data Transfers: TPP required governments to allow the cross-border transfer of information, including personal information, for the conduct of business. The only exception to this obligation is in the pursuit of a “legitimate public policy objective.” The exception, however, could not be undertaken in a manner that constitutes arbitrary or unjustifiable discrimination.
  • Forced Localization: Under TPP, no member country could require a business to locate computing facilities (including servers and storage devices) within its territory, with the same public necessity provision described above.
  • Transfer of Source Code: The TPP prohibited the requirement to transfer software source codes as a condition of doing business or investing in a TPP country. There was an exclusion from this rule for “critical infrastructure,” although this term wasn’t actually defined. In the NAFTA talks, it is understood that this provision has been supplemented to cover the disclosure of a company’s proprietary algorithms as a prerequisite for trade opportunities.
  • Customs Duties on Internet Traffic: The TPP prohibited the imposition of customs duties on cross electronic transmissions. This prohibition, however, didn’t preclude member countries from imposing internal taxes or fees on content transmitted electronically.
  • Privacy and Consumer Protection: Other sections of the chapter contained consumer protection requirements, as well as mandates to provide domestic users with full information concerning their privacy rights.

Related: Information Please: A Comprehensive Approach to Digital Trade Provisions in NAFTA 2.0 (Centre for International Governance Innovation)