Digital Trade Is a NAFTA ‘Must-Win’

When trade negotiators from the United States, Mexico, and Canada convene in Washington this week to begin the hard work of modernizing the 1992 North American Free Trade Agreement, they will turn on their laptop computers, access secure documents, and communicate with their leadership instantaneously via iPhones. This way of working will be a far cry from the hard-copy documents and hand-scrawled messages on which their counterparts relied when NAFTA was first negotiated decades ago.

We’ve come to depend on information technologies to manage our personal lives, run our companies, and, yes, conduct government business in ways no one could imagine then. The data revolution has transformed commerce for almost every North American business, and U.S. companies have led this transformation. It’s one of the strengths of our economy, and that’s why an updated NAFTA needs clear, strong, and enforceable rules addressing digital trade.  

Fortunately, the new generation of NAFTA negotiators won’t have to invent these rules from scratch. They’ll be able to draw upon thinking developed during recent trade talks conducted with Asian and European governments. Indeed, all three NAFTA countries were part of the Trans-Pacific Partnership negotiations, which yielded forward-looking results on a range of electronic commerce and intellectual property topics.

At the top of the digital trade negotiators’ list should be protecting the free flow of data across national borders. Services like cloud computing, data analytics, and artificial intelligence can’t work rapidly and seamlessly if data is trapped behind national borders. Increasingly, however, governments around the world have been enacting laws and policies requiring businesses to store their data locally, forgoing the benefits of the cloud. While there can sometimes be good privacy or security reasons for localized data storage, policies compelling data localization can also be misused for anticompetitive purposes. Unfortunately, there’s no existing body of international law that enables legitimate limitations to be distinguished from ones motivated by pure protectionism of local companies.

Some governments are also demanding that foreign software companies turn over their source code or algorithms as a condition of gaining access to a country’s market. The task for negotiators will be to devise a rule that allows governments to carry out their responsibilities for product safety and security while not endangering the “secret sauce” that is often a US company’s main competitive advantage in trying to crack a foreign market.

NAFTA has the potential to encourage the use of new technology for conducting commercial transactions across North America. Americans have become familiar with the advantages of conducting their personal business using electronic signatures. Machine technologies such as blockchain are emerging for authenticating commercial transactions, without the need for mediating agents such as banks. A modernized NAFTA can ensure that there is a firm legal foundation across our three countries for these new efficiencies and conveniences in doing business.

It goes without saying that digital trade will only continue to grow if consumers trust that it is secure and safe. That’s why it’s essential for NAFTA to break new ground internationally by tackling the problem of cybersecurity. The U.S. government has been at the forefront of efforts to develop a national framework that guides cybersecurity practices across government, businesses, and critical infrastructure. NAFTA offers a great opportunity to harmonize mechanisms for promoting best practices across the region, as well as programs for bringing all of us up to the same high standard.

That’s an ambitious agenda for a negotiation that three governments hope to conclude in a matter of months. But we’re all starting with a shared perspective that digital trade is a crucial part of modernizing NAFTA. It’s much more than that — it’s a “must win” for North America.


Kenneth Propp is director of policy at BSA | The Software Alliance. He has participated for the State Department in negotiations on a number of trade agreements, including the Trans-Pacific Partnership, Transatlantic Trade and Investment Partnership, and the North American Free Trade Agreement.

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