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With Digital Trade Barriers Stacking Up, NAFTA Modernization Is Key

· October 27, 2017

Digital goods and services have become an integral component to international trade. According to the U.S. International Trade Commission, digital trade added up to 2.4 million U.S. jobs and $710 billion per year to U.S. GDP. However, under the guise of promoting domestic innovation, national security, and privacy protections, countries are increasingly adopting discriminatory policies that disadvantage U.S. technology companies in particular and pose significant barriers to cross-border delivery of Internet services.

This matters because the growth of U.S. technology firms — and the success of U.S. small businesses that use these firms to reach global audiences — depends on access to markets where digital barriers are on the rise. It also matters because U.S. firms are in fierce competition with foreign firms for access to over 3.7 billion Internet users across the world. One key data point shows the changing global dynamic: in 2014, nine out of the top ten global Internet companies were made in the United States. Today, only six of those leading brands are U.S.-based.

On Wednesday, CCIA submitted comments to the Office of the United States Trade Representative in preparation for the 2018 National Trade Estimates Report (NTE). The NTE is a tool used by USTR to compile and identify barriers to trade around the world. Our comments identified six prominent barriers to digital trade: (1) data and infrastructure localization mandates, (2) filtering and blocking, (3) inappropriate legal liability for online intermediaries, (4) imbalanced copyright and link taxes, (5) “backdoor” access to secure technologies, and (6) undue restrictions on “over-the-top” services including rich interaction applications.

Countries identified in our comments considering or implementing policies that raise digital trade barriers include:

European Union: Ongoing proposals within the Digital Single Market initiative continue to pose unintended threats to transatlantic digital trade. The current copyright proposal weakens intermediary liability protections and creates new so-called “ancillary” rights that conflict with U.S. law. The proposed ePrivacy Regulation seeks to impose telecommunication regulations on all Internet services. At the Member State level, countries are passing legislation that chips away at protections for online services, including France’s image indexing law, introduction of a notice and staydown process in Italy, and a strict 24-hour takedown process in Germany.

China: The country’s long-awaited Cybersecurity Law went into force in June. The law mandates that “personal” and “important” data gathered or produced in China be stored on servers located in China with limited exceptions. Subsequent proposals for regulations in connection with the law are in constant flux, creating significant and costly regulatory uncertainty to those in the Chinese market. Recently, China has also undergone a massive effort to crack down on use of VPNs and impose strict foreign investment caps on operators offering VPN services.  

Russia: The “Mirrors Law” extended Russia’s SOPA-like copyright enforcement rules into new domains by requiring search providers to delist website links within 24 hours and delist so-called “mirrors” of websites that are “confusingly similar” to a previously blocked website. Russia also passed amendments in May that targeted online platforms offering audiovisual services, imposing content monitoring restrictions and strict foreign investment caps on such services. The two recent developments, combined with continued enforcement of harsh data localization laws, pose significant threats for Internet services operating in Russia or that wish to operate in Russia.

Colombia, Peru, Australia: All of these countries are required under trade agreements with the United States to implement safe harbors from copyright liability reflecting Section 512 of the Digital Millennium Copyright Act. However, none of these countries has met its obligations, putting U.S. exporters at risk.

Ukraine: The updates to Ukraine’s copyright law, creating a notice and takedown system, effectively require all Internet services to monitor user activity. Under the law, protections will be revoked for intermediaries if identical content reappears on a site twice within three months, even despite full compliance with the notice and takedown system.

Thailand: New amendments to the 2007 Computer Crime Act became effective earlier this year, accompanied by regulations and procedures. These changes greatly expanded the authority of the Thai government to police content online, including the creation of a five person committee with power to obtain approval to block websites contrary to the “good morality” of the people.

These increasing barriers to digital trade make it all the more important that USTR seek high standard provisions in trade agreements in addition to its enforcement activity. The renegotiation of the North American Free Trade Agreement (NAFTA) — first negotiated in the infancy of the commercial Internet — is a key opportunity to incorporate provisions focused on promoting digital trade and enabling innovation.

A digital update of NAFTA should, among other things: (1) protect the free flow of information across borders and promote open Internet policies, (2) promote innovation-oriented, balanced copyright regimes and protections for online intermediaries that reflect U.S. law, and (3) promote low-value shipments that characterize much of e-commerce by increasing the ‘de minimis’ threshold.

As discussed on DisCo [1] [2], balanced copyright rules such as fair use and related limitations and exceptions have been critical to the growth of the U.S. technology and Internet economy and central to U.S. innovation.

The United States will be shooting itself in the foot if it pursues positive digital trade provisions such as data flows in NAFTA, but does not also pursue innovation-oriented, balanced copyright rules such as the limitations and exceptions that the U.S. digital economy depends upon.

Rachael Stelly is a Policy Manager at the Computer & Communications Industry Association.

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.