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KORUS Talks Provide Another Opportunity for Strengthening Digital Trade Rules

· January 10, 2018

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The renegotiation of the North American Free Trade Agreement (NAFTA) may be receiving most of the spotlight in trade news these days, but the current U.S. Administration has also set ambitious goals for trade outside of NAFTA in 2018. Last July, U.S. Trade Representative Lighthizer announced that the U.S. would begin discussions with the Republic of Korea regarding changes to the U.S.-Korea Free Trade Agreement (KORUS). The talks continued on January 5 following Korea’s completion of domestic negotiating procedures in late December.

The Korea-U.S. Free Trade Agreement

KORUS was initially negotiated and signed by the George W. Bush Administration in 2008, but was not signed into U.S. law until 2011 by President Obama after subsequent agreement was reached on outstanding issues regarding autos and agriculture. It went into effect on March 15, 2012.

Unlike the ongoing renegotiation of NAFTA, USTR is currently focused on conducting talks on “modifications” and amendments. Under Article 22.2 of KORUS, the Joint Committee, co-chaired by the U.S. Trade Representative and the Minister of Trade of the Republic of Korea, can consider amendments to the agreement or make modifications to commitments therein. Preliminary meetings by the Joint Committee took place in August and October of last year. If the U.S. seeks more significant changes to the agreement under Trade Promotion Authority (which is possible given the tenor of the President’s criticism of the agreement), the Administration must submit notification to Congress of its intent to formally renegotiate which would also impose transparency and reporting requirements.  

KORUS provides an interesting example next to NAFTA in the context of digital trade. NAFTA was negotiated in the infancy of the commercial Internet. KORUS is only six years old, but its limited e-commerce provisions show the growing importance of Internet-enabled commerce to global trade and need for strong rules since its completion in 2012. Global e-commerce has grown from $19.3 trillion in 2012 at the time of its inception to $27.7 trillion in 2016. Digital trade is now a feature of the global trade discussion, with the inclusion of comparatively strong e-commerce chapters in the Trans-Pacific Partnership (TPP) and NAFTA 2.0 (reportedly). Recently over forty World Trade Organization members also agreed to move forward on discussions to global digital trade rules following the 11th Ministerial Conference.

The KORUS talks provide another avenue that U.S. can use to modernize trade rules for the Internet economy. Below is a short refresher of the agreement’s provisions of particular interest to Internet services – the electronic commerce and intellectual property chapters.

Chapter 15: Electronic Commerce

In the electronic commerce chapter parties commit to nondiscriminatory treatment of digital products, recognize the importance of transparency and ensuring consumer protection online, and generally support the growth of electronic commerce through an open environment and the free flow of information. KORUS was not the first U.S. free trade agreement to incorporate an electronic commerce chapter (that distinction goes to the U.S.-Singapore FTA in 2003), but it was the first FTA to directly address cross-border data flows. Article 15.8 provides:

Recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information, the Parties shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders.

However, this commitment is only aspirational and does not go far enough to ensure the free flow of data between trading partners. For instance, the aspirational commitment did not deter Korea from placing restrictions on transfers of “location-based” data by foreign suppliers and issuing guidelines that placed restrictions on cloud computing services offering services to public sector agencies. Both of these policies were identified as trade barriers by USTR in 2017.

A lack of binding commitment does not align with current U.S. trade policy of facilitating cross-border data flows. Section 102 of Trade Promotion Authority states that the negotiating objects of the U.S. on digital trade must ensure that “governments refrain from implementing trade-related measures that impeded digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.” The U.S. satisfied this obligation in TPP negotiations which set truly binding rules on cross-border information flows for the first time in an FTA. Pursuant to TPA and to ensure the growth of Internet services abroad, USTR should pursue stronger obligations to promote cross-border data flows.

Chapter 18: Intellectual Property Commitments to Balance, Intermediary Liability Protection

FTAs are a tool to export the virtues of the U.S. intermediary liability regime under the Digital Millennium Copyright Act that have allowed for online innovation over the past two decades. Like FTAs with Australia, Bahrain, CAFTA, Chile, Colombia, Oman, Peru, and Singapore, KORUS incorporated intermediary liability provisions in the intellectual property rights chapter.

Generally, KORUS represents progress in aligning international markets with clear, predictable rules on intermediary liability and ensuring balanced copyright protection.  However, U.S. international policy has developed on this subject in recent years, and has acknowledged that an ongoing commitment to copyright balance is important. USTR should ensure that these carefully designed balances continue to ensure market access for U.S. exporters.

Retaining Influence in Asia-Pacific

With the United States’s exit from TPP, maintaining trade relations with Asia-Pacific partners is critical. This is especially true as other regional agreements gain momentum. South Korea has announced its intention to join the talks on the Trans-Pacific Partnership 11 and China seeks to expand its influence in the region through the proposed Regional Economic Comprehensive Partnership.

Maintaining these relations must also provide for strong digital trade rules in free trade agreements that ensure cross-border data flows and robust intermediary liability protections. Any changes to KORUS should recognize the benefits of the current agreement as well as opportunities to modernize in order to further facilitate digital trade.

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.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.