December 20, 2018
The Honorable Lisa R. Barton
Secretary
U.S. International Trade Commission
500 E Street, SW
Washington, D.C. 20436
Dear Secretary Barton:
As the U.S. International Trade Commission continues its work of assessing the likely impact of the U.S.-Mexico-Canada Agreement (USMCA) on the U.S. economy, we welcome the opportunity to share the tech industry’s perspective, particularly on the areas relating to digital trade.
TechNet is the national, bipartisan network of innovation economy CEOs and senior executives. Our diverse membership includes dynamic American businesses ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance.
Much has changed in our economy since the North American Free Trade Agreement(NAFTA) was ratified 24 years ago. Since then, the internet has revolutionized the way we do business, and digital trade has become a major driver of economic growth worldwide. Online platforms have helped local American entrepreneurs and small businesses reach new markets and grow, tearing down barriers to entry that once prevented them from growing beyond their communities. Advancements in cloud technologies have facilitated the transfer of data, goods, and services at speeds once thought unimaginable, a phenomenon that has generated enormous economic value: the U.S. runs a $159 billion trade surplus in digitally-deliverable services, and these services are responsible for 7.1 percent of U.S. gross domestic product (GDP) and nearly 6.7 million American jobs.
When the Trump Administration announced its intention to renegotiate NAFTA inMay 2017, we saw an opportunity to update the trade agreement to account for the many transformative changes that have upended global commerce. A little more than a year later, the leaders from the U.S., Canada, and Mexico realized this goal with the signing of the USMCA on November 30. While it is not perfect, the USMCA makes significant progress in eliminating barriers to digital trade and promoting economic growth and opportunities that benefit American workers, businesses, and entrepreneurs. Below is our assessment of several key provisions included in the USCMA.
A top objective of any trade agreement entered into by the U.S. must be to reduce tariff and non-tariff barriers to information and communications technology products, services, and investments. We support the USMCA’s provisions allowing for freer trade in remanufactured goods, greater flexibility in approaches to telecommunications regulation, light-touch approaches to value-added telecommunications services, and safeguards to help protect technology choice.Greater economic competition and growth will also be enhanced in this agreement by binding Mexico to its 2013 telecommunications reforms.
In the modern digital economy, protections for the free flow of data across borders, strong protections for intellectual property (including source code), and safeguards against intermediary liability are essential. We support the USMCA’s provisions restricting the three governments’ ability to constrain cross-border data flows, the absence of duties on digital products, improved protections for intellectual property rights (including criminal and civil prosecution of trade secret misappropriation),allowing products with commercial encryption to be traded freely, and improved market access for trade in all services, including those that are digitally delivered.Together, these measures will facilitate digital trade between the U.S., Mexico, andCanada and result in greater economic growth for our nations’ digital economies in he years to come.
Given the important role the private sector plays in partnering with governments at all levels to achieve key missions and deliver higher quality services, a key goal for the U.S. in all trade negotiations must be to ensure that U.S. companies can compete on a level playing field for procurement opportunities with the governments of our trading partners. On this front, while the full impact of theUSMCA’s procurement chapter continues to be evaluated by the affected industries and companies, there are several areas of concern. For example, the USMCA’s government procurement chapter does not apply to Canada. Additionally, U.S.companies will have to meet higher thresholds to compete in public procurement opportunities. It is also unclear if U.S. companies will have access to dispute settlements and bid challenge mechanisms under the World Trade Organization’s(WTO) Government Procurement Agreement (GPA); under the original NAFTA, U.S.companies could protest procurements and awards in the Canadian Court ofInternational Trade. However, one positive aspect of the USMCA’s procurement chapter is its special recognition of cloud computing as specified in provision D304.
In the nearly two and a half decades since NAFTA was ratified, global supply and value chains have become highly prevalent in international production and trade.They have proven to be essential for global innovation, as the production process for complex technology products is increasingly spread out across several countries and, in some cases, continents. Innovators face challenges and higher costs, however, when these chains are disrupted by localization requirements, including forced technology and investment conditions that discriminate against U.S.interests. The USMCA preempts this potential problem and streamlines the supply and value chains in North America in part by prohibiting governments from requiring localization of communications infrastructure.
Each new trade agreement is an opportunity to modernize customs systems in ways that facilitate trade. For the digital economy, customs modernization and the promotion of open payment systems that support digital trade flows, particularly by small and medium sized enterprises (SMEs), are especially important. The USMCA succeeds on both counts. One critical way the agreement enhances customs related trade facilitation is by providing for advanced rulings and requiring governments to post trade documentation online.
However, among the most concerning aspects of the USMCA are its rules governing de minimis thresholds. Since the original NAFTA was ratified, one of the most important and transformative changes to the U.S. and global economy has been the internet’s ability to instantly connect buyers and sellers through online marketplaces. Encouraging further economic growth and opportunities in this area can be accomplished in international trade agreements by providing customs relief to small businesses operating abroad by compelling our trading partners to raise their de minimis thresholds to better align with the standards of the U.S., whichCongress has established by law at a level of $800. The USMCA fails to accomplish this. Although the deal’s modest threshold increases in some areas are welcome, it establishes a new and more complicated de minimis regime that fails to account for the reality that the vast majority of shipments stemming from online marketplace transactions (including returns) occur via express delivery. In addition, what is most concerning about the USMCA is a provision that could allow the U.S. to decrease its own de minimis threshold from its current level of $800, which would mark a clear circumvention of U.S. law as established by Congress.
It is important that trade agreements address cybersecurity, given the economic harm that cyberattacks can inflict. In 2016, more than four billion records were stolen by cyber criminals, and cybercrimes were estimated to cost the American economy between $57 and $109 billion. By 2019, cybercrimes are expected to be a $2.1 trillion problem for the global economy. As our three nations are poised to become even more integrated as a result of the USMCA, we must be prepared to protect against the cyberthreats we will inevitably face. Although negotiators failed to secure Mexico’s commitment to join the Information Technology Agreement(ITA), we are encouraged that the USMCA promotes the use of risk-based approaches to cybersecurity and requires governments to recognize telecommunications certification test reports from each other’s countries. This is an important step to ensuring the proper protocols are in place to protect the flow of information across our borders.
In closing, we reiterate our belief that, while the USMCA is not perfect, it does make important progress in eliminating barriers to digital trade and promoting economic growth and opportunities that benefit American workers, businesses, and entrepreneurs. While we support making additional improvements to its current text, the USMCA represents a significant upgrade from NAFTA on issues important to the digital economy, including protections for intellectual property rights, the facilitation of cross-border data flows, and cybersecurity standards, among others.
Thank you for considering these comments. We welcome the opportunity to serve as a resource as the ITC continues examining the economic impact of the USMCA.
Sincerely,
Linda Moore
TechNet President and CEO
CC: Chairman David S. Johanson, International Trade Commission
Commissioner Irving A. Williamson, International Trade Commission
Commissioner Meredith M. Broadbent, International Trade Commission
Commissioner Rhonda K. Schmidtlein, International Trade Commission
Commissioner Jason E. Kearns, International Trade Commission
About TechNet
TechNet is the national, bipartisan network of technology CEOs and senior executives that promotes the growth of the innovation economy by advocating a targeted policy agenda at the federal and 50-state level. TechNet’s diverse membership includes dynamic American businesses ranging from startups to the most iconic companies on the planet and represents over three million employees and countless customers in the fields of information technology, e-commerce, the sharing and gig economies, advanced energy, cybersecurity, venture capital, and finance. TechNet has offices in Albany, Austin, Boston, Chicago, Olympia, Sacramento, San Francisco, Silicon Valley, Tallahassee, and Washington, D.C.