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USMCA: A New Standard for Digital Trade

Digital technologies have created innovations and led to higher living standards that were unthinkable when the North American Free Trade Agreement (NAFTA) was first implemented in 1994. Then, internet access was limited; now people regularly connect with one another from the palm of their hands and digital devices connect to create smarter cities, more precise manufacturing, and improved healthcare. This technological growth will only continue. In fact, 90 percent of the world’s existing data has been created in the past two years.

Today’s economy relies on the seamless flow of data across borders and modernizing this landmark trade agreement to reflect our digital reality is imperative for sustaining and enhancing economic growth in the United States, Mexico, and Canada. To that end, ITI is encouraged by many of the provisions in the recent United States-Mexico-Canada Agreement (USMCA), and we believe USMCA’s digital trade commitments will nurture growth and benefit companies of all sizes and industries. For example, a small business in North Carolina using software developed in Toronto can offer accounting services to a client in Guadalajara, who then creates and sells children’s toys to a family-run toy store in Washington without burdensome regulations or requirements that could make these services more expensive, and therefore inaccessible to these small businesses.

As a vocal supporter of the effort to modernize NAFTA, ITI has had an important role in providing expertise to negotiators. I look forward to testifying this week to share our analysis of USMCA with the U.S. International Trade Commission (USITC) during its two-day hearing, United States-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and on Specific Industry Sectors.

At the outset of modernization talks, ITI identified the need to craft a 21st-century trade agreement that recognizes the key role technology plays in the economy by ensuring cross-border data flows; prohibiting tariffs, taxes, and other barriers on data flows, hardware, and digital services; prohibiting requirements to localize data, production, or infrastructure; and barring the forced transfer of technology, source code, or encryption keys.

The USMCA takes significant steps to address those critical needs for any modern approach to trade. Specifically, the USMCA reduces trade barriers by facilitating cross-border data flows that allow companies of all sizes and in all industries to access digital services at affordable prices, adding new value to customers by offering or creating new services using data, and leveraging data to create new products or services that can transform ideas into businesses. The agreement protects against costly tariffs and taxes on technology products and services that enable growth across the region. At the same time, it prevents companies from having to open a local office or store data locally, which increases costs and regulatory burdens, especially for small businesses. The USMCA also includes crucial protections for data-driven business, preventing companies from being required to reveal critical business practices such as algorithms, source code, or encryption keys as a condition for doing business.

The USMCA digital trade chapter sets a high standard for global treatment of digital technologies, but it is not the only part of the agreement that is important to tech. We continue to review provisions related to government procurement, customs and trade facilitation, intellectual property rights, and technical barriers to trade, and we look forward to working with the administration and Congress to achieve similarly positive results for the tech industry in these other critical areas.

As the United States looks to create new trade agreements with countries and regions across the globe, we believe USMCA sets a strong precedent. I look forward to sharing ITI’s assessment with the USITC and helping advance the United States’ work on this important agreement.

Public Policy Tags: Trade & Investment