U.S. Must Address Digital Trade Barriers, House Panel Says

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By Daniel R. Stoller

Congress will keep looking for ways to lift barriers affecting U.S. companies that compete in cross-border digital trade, including by pushing trade negotiators for critical provisions when negotiating pacts like NAFTA, House lawmakers said Oct. 12 at a hearing.

Lawmakers and witnesses pointed to the North American Free Trade Agreement and other trade deals as important avenues for updating cross-border digital trade protections.

Chairman Bob Latta (R-Ohio) said the Trump administration and Congress could both play “a significant role” in encouraging the free data flow across borders through trade pact negotiations and working with important trading partners like the European Union.

Large U.S. tech companies, such as Facebook Inc. and Alphabet Inc.'s Google, are impacted by rules that restrict cross-border data flows, such as requirements that companies store data on servers within a particular country. But the expanding digital economy means manufacturers, health-care providers, farmers, and small businesses are also increasingly affected by barriers and restrictions, witnesses said at a House Commerce Subcommittee on Digital Commerce and Consumer Protection hearing.

Some countries embrace data localization requirements as a way of leveling the playing field in the international digital trade market, Dean Garfield, president and CEO of the Information and Technology Industry Council, said. But that “undermines the competitive advantage of U.S. companies,” he said.

China, India, Indonesia, and Russia all have data localization laws or rules requiring that companies store certain data on servers located within their geographic boundaries.

Ranking member Jan Schakowsky (D-Ill.) said “companies shouldn’t have to decide between privacy and security” when entering the digital marketplace. Countries that have data localization provisions increase data security risks, she said, and the U.S. must distinguish between policies that harm digital trade and “those designed to protect privacy and security.”

Without the U.S. pursuing its data security and privacy policies through international trade agreements, countries such as China will continue to push their policy goals around the world to the detriment of U.S. companies, Garfield said.

Digital trade is an important U.S. economic indicator, “raising real U.S. GDP and contributing to an estimated 2.4 million new jobs,” according to a majority hearing memo. U.S. digital services exports accounted for $385.1 billion or “54.2 percent of total U.S. services exports,” according to a Department of Commerce Bureau of Economic Analysis report cited in the memo.

Victoria Espinel, president and CEO of BSA - The Software Alliance, said President Donald Trump should use NAFTA to “help set up a precedent on an intentional consensus for what are the right set of rules on the free movement of data.”

Privacy Shield

Also discussed at the hearing was the EU-U.S. Privacy Shield data transfer framework that allows Google, Facebook, Microsoft Corp., and nearly 2,500 other U.S. companies to more easily transfer their data from the EU to the U.S.

Garfield said the U.S. should enact similar deals with other countries to develop freer information flow and boost the digital economy. Also, these pacts may be a way for the U.S. to promote its leadership to develop “definitions of privacy and data security” around the world, he said.

The U.S. and Europe must also reach a long-term solution so other cross-border data challenges, such as the ongoing litigation in the EU on whether standard contractual clauses used to protect privacy are legal, don’t undermine digital trade, Espinel said.

The case involving Facebook concerns the legality of standard contractual clauses widely used as an alternative to the Privacy Shield.

If these standard contractual clauses are struck down, “it would be harmful to cross border trade,” Jennifer Daskal, associate professor of law at the American University Washington College of Law, said at the hearing.

To contact the reporter on this story: Daniel R. Stoller in Washington at dstoller@bna.com

To contact the editor responsible for this story: Donald Aplin at daplin@bna.com

For More Information

Further information on the hearing is available at http://src.bna.com/tkb.

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