NAFTA Digital Trade Provisions Seen At Risk As Other Talks Stall

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By Michaela Ross and Rossella Brevetti

U.S. technology companies are worried that stalled talks on non-technology provisions in a revamped North American Free Trade Agreement could derail the entire pact and quash long-sought digital trade language, tech industry trade groups told Bloomberg Law.

“There is real fear in the business community that either the agreement does not get modernized or there is a withdrawal,” Josh Kallmer, senior vice president of global policy for ITI, a trade group that represents Microsoft Corp. and EBay Inc., told Bloomberg Law.

The U.S., Canada and Mexico are heading into a pivotal sixth round of NAFTA negotiations Jan. 23-28 in Montreal. All three countries support the addition of a digital chapter to the 1994 trade deal that was created before the modern internet age. But talks are hung up over several separate, more contentious U.S. proposals, such as government procurement requirements, that private-sector sources have said could thwart any final agreement.

NAFTA is the only major trade deal that the U.S. is negotiating to include digital provisions after President Donald Trump pulled the country out of the Trans-Pacific Partnership. The U.S. has also put off moving forward with another proposed international deal, the Trade in Services Agreement (TiSA).

“It’s the only active negotiation right now where this type of modernization can take place,” Craig Albright, vice president of legislative strategy for BSA | The Software Alliance, told Bloomberg Law about the NAFTA talks.

Tech groups such as ITI and BSA have long called for digital trade provisions in trade agreements that protect the free flow of data across borders and shield websites from being held liable for content posted by their users. Including digital provisions in a revamped NAFTA also would ensure companies in the three countries have more certainty in developing algorithms for artificial intelligence applications and deciding where to locate servers, proponents say.

More recently, non-tech industry groups, representing agriculture, manufacturing and others, have also supported digital trade provisions as member companies increase their global reach and integrate new technologies.

U.S. trade in digital services, including software, reached $404 billion in 2016, generating a $160 billion trade surplus, according to the Commerce Department.

Stalled On Non-tech Issues

NAFTA chief negotiators and other negotiating groups last met Dec. 11-15 in Washington and made progress on energy efficiency and other less contentious issues. But private-sector sources familiar with the talks say there was no forward motion on thornier issues, including U.S. requests for stricter automobile rules of origin, a sunset clause that could end NAFTA after five years, a proposal that would claw back opportunities for Mexican and Canadian companies to bid on U.S. government contracts, and eliminating or reducing binding dispute settlement mechanisms in NAFTA.

Trump’s repeated threat to pull the U.S. out of NAFTA if he can’t get a better deal continues to cast a shadow over the talks. If NAFTA talks fail, there is no clear path for implementing digital trade provisions in another U.S. agreement, industry sources say.

U.S. Trade Representative Robert Lighthizer said in September his office was reviewing whether it would pursue TiSA, but hasn’t announced a decision. The office did not immediately respond to a Bloomberg Law request for comment.

Precedent-Setter

Tech companies hope a modernized NAFTA will make North America a global innovation hub, Cody Ankeny, manager of global policy at ITI, told Bloomberg Law.

“The precedent setting aspects of this is one of the most important things to us,” Ankeny said. “One of the most important things we’re trying to push here is that it doesn’t just have to be the United States that this deal benefits—these laws have benefited innovation.”

Industry groups are also hoping that a NAFTA digital chapter would set a precedent for future trade agreements by other countries looking for a template, Carl Schonander, senior director for international public policy at the Software & Information Industry Association, told Bloomberg Law. Schonander’s group represents companies such as Adobe Systems Inc. and Intuit Inc.

“It’s all the more important to get this done to set a standard,” Schonander said. “We think that the digital trade provisions in a modernized NAFTA would have an influence well beyond the three countries that are included.”

Schonander cited an initiative announced in December by the World Trade Organization to explore e-commerce trade policies as one example where a digital chapter in a revamped NAFTA could be relevant.

—With assistance from Bryce Baschuk

To contact the reporter on this story: Michaela Ross in Washington at mross@bloomberglaw.com, Rossella Brevetti in Washington at rbrevetti@bloomberglaw.com

To contact the editor responsible for this story: Roger Yu at ryu@bloomberglaw.com

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