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Commerce Report Shows What’s At Stake in NAFTA 2.0 for Digital Trade

· January 11, 2018

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By Rachael Stelly & Isabelle Styslinger

As DisCo has repeatedly emphasized [ 1, 2, 3, 4 ], modern trade agreements must recognize the growth of Internet-enabled commerce and its integration in the global economy. Last week the Bureau of Economic Analysis (BEA) at the U.S. Department of Commerce released a study on the value of Digital Trade in North America, highlighting just what is at stake in the renegotiation of the North American Free Trade Agreement (NAFTA) as we head into the next round.

The BEA’s report estimates the value of this industry by examining the international trade of information and communications technology (ICT) services and “potentially” ICT-enabled (PICTE) services — “services that can be traded remotely using the internet or some other digital network.” For example, insurance services, financial services, and telecommunications services could all be digitally provided, and therefore fall under this PICTE classification. In other words, the BEA tries to estimate the value of digitally traded services by identifying ones that are most likely transmitted over a digital network rather than in person.

They estimate that, in 2016, such services accounted for 54 percent of all U.S. exports, 48 percent of all services imports, and 64 percent of the trade in services surplus. This translates to $403.5 billion in exports and $244.0 billion in imports.

The report makes the following observations with respect to digital trade with North America partners looking at data from the past decade:

  1. U.S. PICTE service exports to Canada totaled $27.8 billion, accounting for 52 percent of all U.S. service exports to Canada. PICTE exports to Canada grew at an annual growth rate of 4 percent from 2006 to 2016.
  2. U.S. PICTE service exports to Mexico totaled $8.8 billion, accounting for 27 percent of U.S. service exports to Mexico. PICTE exports to Mexico grew at an annual rate of 5.5. Percent from 2006 to 2016.
  3. U.S. PICTE services trade in total was $403.5 billion in exports and $244.0 billion in imports.

The report could also very well be underestimating the extent of digital trade in North America. Only trade involving monetary exchange is accounted for, meaning many cross-border, zero-dollar data transactions, despite being valuable to businesses and consumers, do not show up on the BEA estimates. When one contemplates the number of free-to-the-user services offered to consumers online, it is clear that quite a large amount of economic activity is not factored into these estimates.

What’s more, these numbers show that almost half of all services traded from the U.S. to Canada and Mexico are likely delivered through cross-border data flows. This confirms that the growth of digitally-enabled services is critical to the trading relationship with our North American partners.

It also illustrates just what is at risk if the U.S. retreats from NAFTA or fails to provide clear rules to allow for the next decade of innovation. For example, the current agreement does not include an electronic commerce chapter. Without commitments from members to refrain from implementing data localization mandates or creating restrictions of cross-border data flows, the economic benefits of PICTE service exports to the U.S. detailed in the report are threatened.

With the BEA’s data in mind, the U.S. should use the NAFTA discussions to strengthen this relationship by updating the agreement with new rules for the digital age.

Digital Trade

Companies rely on clear, predictable rules that facilitate digital trade to export their products and services around the world. These rules include balancing the competing interests between encouraging investment and enabling information access; promoting the free flow of information online; and maintaining balanced intermediary liability regimes.