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.
On Friday afternoon, the United States Trade Representative (USTR) released updated objectives for the renegotiation of the North American Free Trade Agreement (NAFTA). Widely anticipated by industry and the trade community, the new objectives provide an overview of U.S. priorities for the agreement five negotiation rounds in. Under the Trade Priorities and Accountability Act of 2015, USTR must “regularly update” the public on U.S. objectives following the start of negotiations. Prior to Friday’s release, USTR had not yet fulfilled this obligation with respect to NAFTA, and Senator Ron Wyden recently pressed USTR to comply with this aspect.
After concerning reports about the removal of critical safe harbors for online intermediaries in the earlier rounds and a lack of clear commitments in the original set of priorities released in July, USTR’s commitment to modernizing the agreement to better reflect the digital economy was questionable. These updated objectives represent significant progress on digital trade priorities and shed necessary light on the ongoing process, but the objectives still fall short with respect to ensuring liability protections for intermediaries for third party content paralleled in U.S. law.
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.
Last week, the content industry launched a new coalition—ACTION for Trade—dedicated to keeping Internet intermediary safe harbors out of the renegotiated North American Free Trade Agreement (“NAFTA”). Matt Schruers noted in a recent DisCo post that such an effort would break with existing law and Congressional direction in trade promotion legislation. It also would break a nearly 20-year-old bargain brokered by Senator Orrin Hatch, now the chairman of the Senate Finance Committee. This bargain, first embodied in the Digital Millennium Copyright Act (“DMCA”), has been replicated in U.S. free trade agreements with sixteen countries.
Congress enacted the safe harbor system in 1998 as one title of the much broader DMCA. This broader statute, in a separate title, established prohibitions on the circumvention of technological protection measures. These two titles were adopted together to create a balanced approach to copyright enforcement in the Internet environment. They represented a carefully negotiated compromise between diverse stakeholders.
As negotiators converge on Ottawa to resume talks over updating the 1994 North American Free Trade Agreement (NAFTA), content interests have barraged U.S. trade officials with letters demanding that the U.S. Government abandon critical balancing mechanisms in the agreement’s copyright chapter, regarding fair use and safe harbors for Internet services.
How these issues are resolved is critical, since it will affect Internet and technology industries’ support for the IP chapter of the agreement, and potentially NAFTA itself.
There are two major moving parts here: (1) whether USTR undermines well-established safe harbors for online intermediaries, and (2) whether USTR abandons the policy of promoting balanced copyright in free trade agreements.
As previously noted here, acceding to Hollywood and recording industry demands would break with existing U.S. law, and Congressional direction in trade promotion legislation. This would also walk back priorities that were laid out by USTR itself earlier this year. Nevertheless, some in the entertainment industry are urging U.S. negotiators to do exactly that, at the risk of crossing red lines for Congress, negotiating partners, and various U.S. stakeholders.
Today is the final day to submit comments to the United States Trade Representative (USTR) on modernization of NAFTA — comments were extended by several days “due to high interest.” The opportunity to comment on updating a key trade agreement, reflecting the significant change in the economy in the past two decades since it was enacted, has already attracted submissions from hundreds of organizations, companies, and individuals.
Digital trade issues may produce some of the most important updates to NAFTA. Despite being one of the largest trade agreements in which the United States participates, it largely predates the transformation of the U.S. economy into a digital economy. It therefore doesn’t fully address issues like balanced copyright, data localization, and online liability protections. As a result, a large part of what the United States actually exports does not benefit from the agreement. This is the first in a series of posts focusing on digital issues that will be relevant in the reexamination of NAFTA.
Balanced copyright, including limitations and exceptions like fair use, has been key to growing the U.S. digital economy, and is an important component of digital trade.
Late last week the Senate voted to confirm Robert Lighthizer as U.S. Trade Representative (USTR), the nation’s top trade enforcer. A host of challenges await Ambassador Lighthizer, a veteran of USTR under Reagan, as he takes the post. The agency’s annual survey of barriers to U.S. exports released in April, the National Trade Estimate, spanned nearly 500 pages, flagging obstacles to market access in scores of countries around the world.
In recent years, U.S. trade officials have scrambled to respond to new market access crises in critical overseas markets. One of the fastest growing hotspots in international trade has been digital trade, which received special attention from USTR in a March fact sheet. Officials have been acutely aware of these threats due to the amount of economic activity at stake. Between 2007 and 2014, U.S. digital services exports grew from $282 billion to nearly $400 billion. With millions of jobs and the fastest growing sector of U.S. employment riding on these exports, a lot is at stake.
The U.S. Government recently took a significant step toward a 21st century trade policy. The U.S. Trade Representative’s “National Trade Estimate Report on Foreign Trade Barriers” (NTE) singled out numerous barriers to international, Internet-enabled commerce in its annual “threat assessment” for U.S. trade. (very large PDF here). While media coverage focused on the fact that the NTE report called out direct Internet censorship in nations like China (e.g., Reuters, N.Y. Times, AP), the report goes much further than that.
In fact, USTR specifically highlighted the NTE report’s new focus on digital trade. In addition to citing censorship, the report flags other examples of filtering and site blocking, and identifies issues like mandatory localization rules and liability standards, among other problems. As DisCo has covered before, U.S. trade policy has slowly evolved toward recognizing Internet trade as a mode of commerce that is on equal footing with physical trade.
Although more than 20 years have passed since the commercialization of the Internet, online commerce continues to be treated differently from global physical commerce. While international rules unambiguously prohibit restricting trade in goods (except in narrow circumstances), a filing by my organization, CCIA, documented widespread discrimination against Internet trade in services. Although trade scholars have argued for years that WTO rules should be understood to prohibit these digital trade barriers,   they are frequently flouted. Aside from a handful of cases, few countries have attempted to enforce free trade rules with respect to the Internet. As I explained to a Congressional commission last year, this includes the United States, much to the detriment of U.S. exports. MORE »
As a fight over the trade promotion authority (TPA) bill “engulfs the capitol,” debate has arisen over whether Congress should identify obtaining balanced copyright language as a U.S. trade priority. Both the Internet Association and the Computer & Communications Industry Association (where I work) criticized the bill’s failure to acknowledge the importance of promoting balanced copyright among U.S. trading partners, since the absence of these protections limits growth opportunities abroad. The Consumer Electronics Association, while applauding the legislation, expressed a similar view, observing that “[f]uture trade agreements should include not only include strong intellectual property protection and enforcement, but also robust and flexible limitation provisions.”
In response to the concerns voiced by the Internet sector, Geoffrey Manne appears to disagree, writing for Truth on the Market that “mandated ‘fair use’ language has no place in trade promotion authority.” (It is important to recognize that these statements do not call on Congress to “mandate fair use” in TPA. The question is whether Congress should direct the U.S. Trade Representative to promote balanced copyright in foreign markets that U.S. Internet companies are entering.)
This issue is important because of the high stakes. Manne is right in saying that trade promotion authority is important, but this glosses over how controversial it can be. As former Deputy USTR Miriam Sapiro wrote at Brookings this week, “the stakes as well as the hurdles for getting trade promotion authority from Congress are high. Critics of trade agreements have been well organized and mobilized.” Trade needs every friend it can get right now, which is why it would be a grave mistake to throw Internet concerns under the bus. This is particularly the case given that the Obama Administration’s last trade effort, ACTA, foundered several years ago due to the perception that the agreement was anti-Internet.
Last week, the head U.S. trade negotiator, Ambassador Michael Froman, delivered a speech addressing the Trade in Services Agreement (TiSA). What got my attention was the prominence that the Internet and Internet-centric commerce received in the speech.
Although this might seem like common sense given the immense role that the Internet plays in international commerce (particularly trade in services), the international trade regime has been slow to embrace this technological revolution. As I have written before on this blog, Internet trade has traditionally received relatively short shrift from traditional trade negotiators. However, at least in the U.S., that trend is changing.
[As an interesting aside, watch this presentation by J. Bradford Jensen to get a better understanding of the importance of trade in services to the U.S. and global economy.]
Before I chronicle the USTR’s evolution on Internet-enabled trade rhetoric and action, I want to throw out a few recent examples of why trade negotiators — in the U.S. and the rest of the world — should focus on facilitating a free and open Internet if they want to help consumers and global commerce.
At the risk of stating the obvious, I need to lay out the keystone fact up front for the purposes of my argument: the Internet has an enormous positive effect on international commerce: particularly for small businesses. The Boston Consulting Group estimates that the G-20’s Internet economy will be worth $4.2 trillion by 2016 and that more than one-fifth of the growth of modern economies from 2007-2012 is attributable to the Internet. These effects are predicted to significantly increase as Internet penetration grows in the rest of the world.
For major U.S. Internet companies, international markets have become increasingly more important. And the potential for international competition has become more robust. In the latest installment of Mary Meeker’s routinely fabulous annual report on internet trends, she documents this phenomenon. While nine out of the top ten “global Internet properties” are made in the U.S.A., 79% of their users come from outside the U.S. Compare this to 2005, when Google’s total international revenue was 39% of its overall sales. Now, 56% of Google’s revenue comes from overseas. For Facebook, it is a similar story. Currently, 86 % of Facebook’s users are international, while less than 50% of Facebook users were international as of 2008.