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Updated March 29, 2019
Digital Trade
Background
around the globe that could impair U.S. digital sales or
The rapid growth of digital technologies in recent years has
undermine U.S. technological leadership.
facilitated economic activity and created new opportunities
for U.S. consumers and businesses. For example,
Selected Digital Trade Issues
consumers today access e-commerce, social media,
Protectionist policies may erect barriers to digital trade, or
telemedicine, and other offerings not imagined 30 years
damage trust in the underlying digital economy, and can
ago. Businesses use advanced technology to reach new
result in the fragmentation of the internet or discriminatory
markets, track global supply chains, analyze big data, and
trade treatment. As with traditional trade barriers, digital
create new products and services. At the same time, new
trade constraints can be classified as tariff or nontariff
technologies raise new trade policy issues, including the
barriers and take many forms (see Text Box). What some
lack of common disciplines to help govern such trade, the
policymakers see as protectionist, however, others may
emergence of new trade barriers and broader public policy
view as necessary to safeguard certain domestic policy
questions about online information.
interests. Prominent trade issues include:
Data and data flows form a pillar of innovation and
Internet Sovereignty. In some nations, the government
economic growth. Trade in manufactured goods and
seeks strict control over digital data within its borders, such
agricultural products often depends on cross-border data
as what information people can access online, and how
flows. For example, manufacturers may communicate with
information is shared inside and outside its borders,
global customers and suppliers via the internet. Farmers
creating digital trade barriers. For example, firms operating
may use real-time satellite data to optimize the productivity
in China experience a variety of barriers, such as censorship
of crops and soil. Digitally delivered service exports also
(the so-called “Great Firewall”), requirements to use local
rely on cross-border data flows.
standards, and national security reviews; Russian laws ban
In 2017, U.S. exports of information and communication
virtual private networks and require providers of encrypted
technology (ICT) goods were $146 billion, and ICT
messaging services to potentially share users’ chats.
services exports were $71 billion. In addition, exports of
Localization and Cross-Border Data Flow Limits.
potential digitally enabled services were $439 billion,
Organizations seek efficiency and market access by freely
comprising over half of U.S. services exports. The volume
moving data across national borders or by using cloud
of global data flows is growing faster than trade or financial
services. Regulators seeking to promote security and
flows, and its positive GDP contribution offsets the lower
personal data privacy, or support domestic firms, may
growth rates of trade and foreign direct investment (FDI)
impose mandates for local data storage or use of local
(see Figure 1).
partners or inputs, raising costs for foreign firms. A 2017
survey by the U.S. International Trade Commission found
Figure 1. Digital Effects on World GDP (percent)
that data localization was the most-cited policy measure
seen to impede digital trade. For example, the European
Union’s data protection regulation places limits on the use
and cross-border transfer of individuals’ personal data.
Cybertheft or Forced Technology Transfer. Infringement
of intellectual property rights (IPR) or lack of IPR
enforcement may limit a company’s ability to benefit fully
from its innovations and investments, such as trade secrets,
proprietary algorithms, or source code. IPR infringement in
the digital environment is particularly difficult to quantify
but is considered to be significant, potentially exceeding the
volume of sales through traditional physical markets or
legitimate downloads.
Regulatory Issues. Governments may impose requirements
Source: Gary Clyde Hufbauer and Zhiyao Lu, “Can Digital Flows
deemed overly burdensome by firms and which increase
Compensate for Lethargic Trade and Investment?,” Peterson Institute
costs, or that favor local firms. Regulations may be applied,
for International Economics, November 28, 2018.
for example, in a discriminatory or overly trade-restrictive
In general, the United States supports an open,
manner, creating a trade barrier for foreign firms. For
interoperable, secure, and reliable internet, including the
example, India has compulsory registration of all ICT
free flow of online information. However, industry
goods imports with the national standards agency.
stakeholders raise growing concerns about the rise of digital
trade barriers, divergent rules, and national standards
https://crsreports.congress.gov
Digital Trade
Digital Trade in Trade Agreements
U.S. FTA Negotiations
The United States has sought to combat barriers to digital
The United States has used FTA negotiations to set new
trade through negotiation of rules and disciplines in free
digital trade rules, balancing innovation and an open
trade agreements (FTAs) and in multilateral fora. Congress
internet with national security and privacy objectives.
established U.S. trade negotiating objectives on digital trade
U.S.-South Korea FTA (KORUS). KORUS includes the
in U.S. Trade Promotion Authority (TPA). The objectives
most robust digital trade provisions in a U.S. FTA currently
seek to remove barriers to trade in digital goods and
in force. Its provisions address nondiscrimination of digital
services, ensure cross-border data flows, and eliminate and
products; prohibition of customs duties; transparency;
prevent localization measures in future U.S. trade
electronic authentication and paperless trading; consumer
agreements, among other objectives (P.L. 114-26).
protection cooperation; and promoting cross-border
World Trade Organization (WTO)
information flows.
The WTO was established in 1995, before the current reach
USMCA. Like the WTO, the North American Free Trade
of the internet and the explosive growth of global data
Agreement (NAFTA) entered into force when the use of the
flows. Since then, no comprehensive agreement has been
internet, e-commerce and digital trade were much less
reached on digital trade. Some existing WTO Agreements
prevalent. The renegotiated proposed U.S.-Mexico-Canada
cover aspects of digital trade. To date, WTO Members have
Agreement (USMCA) includes provisions on digital trade
agreed to a temporary moratorium on customs duties on
and the free flow of information in multiple chapters of the
electronic transmissions, but some countries, such as India,
agreement, and addresses a wide variety of digital trade
have suggested that duties on digital products could be a
barriers. Provisions include prohibitions on customs duties;
future source of government revenue.
nondiscrimination commitments; and restrictions on cross-
The WTO General Agreement on Trade in Services
border data flows, localization requirements, forced
(GATS) contains obligations on nondiscrimination and
disclosure of source code or algorithms, technology
transparency that cover service sectors and modes of supply
transfer, or access to proprietary cryptography information.
to which a Member has agreed. Digital trade, data flows,
It also contains measures related to electronic signatures,
and other trade barriers are not specifically included.
consumer choice, authentication, and combatting IPR theft.
Provisions allow for some public policy exceptions.
The WTO Information Technology Agreement (ITA)
eliminates tariffs on a specific list of ICT goods and was
USMCA would require parties to establish civil and
updated in 2015 to include newer technologies that power
criminal procedures and penalties for trade secret theft,
digital trade, such as multi-component semiconductors. ITA
including cyber theft, the establishment of consumer
is a plurilateral agreement, including the United States and
protection laws, and a legal privacy framework to protect
53 others. The benefits of the agreement are extended on a
personal information that reflects international guidelines.
most-favored nation (MFN) basis to all WTO members.
To balance privacy and open data flows, the parties agree to
further develop and promote interoperability systems
The WTO Agreement on Trade-Related Aspects of
between privacy regimes. The proposed agreement also
Intellectual Property Rights (TRIPS) provides minimum
recognizes risk-based approaches and the need for
standards of IPR protection and enforcement, including
strengthened cooperation between governments on
online, for copyrights and related rights, trademarks,
cybersecurity. Provisions would encourage the use of open
patents, trade secrets, and other forms of IP.
government data. Some Members of Congress and Trump
Administration officials have suggested that USMCA
Examples of Barriers to Digital Trade
serves as a baseline for future FTA negotiations.
High tariffs and/or low de minimis threshold
Issues for Congress
Discrimination against digital products/services
As Congress considers addressing digital trade, it may
Localization requirements (e.g., data or computing facilities)
consider a number of issues, including:
Cross-border data flow limitations
Mandated use of local technology, content, or supplier
Do the proposed USMCA provisions effectively address
Discriminatory, unique standards or burdensome testing
U.S. digital trade barriers, and should they be used as a
Filtering or blocking
template for future U.S. FTAs?
IPR infringement
How can FTAs be structured to strike the right balance
Cybertheft of trade secrets
between digital trade liberalization and privacy and
Requirements for source code disclosure, transfer of
broader national security considerations?
technology, or proprietary cryptography information
How can the United States use the WTO e-commerce
Cross-border electronic card payment limitations
initiative to set international rules and standards for
cross-border data flows, or emerging technologies?
For more information, see CRS Report R44565, Digital
WTO E-Commerce Plurilateral. In January 2019, the
Trade and U.S. Trade Policy, coordinated by Rachel F.
United States, as part of a group of over 70 WTO members,
Fefer.
launched efforts to explore future WTO negotiations on
trade barriers related to e-commerce. The U.S. government
Rachel F. Fefer, Analyst in International Trade and
has emphasized the need for a high-standard agreement that
Finance
includes enforceable obligations. The negotiating parties
continue to discuss the scope of any potential agreement.
IF10770
https://crsreports.congress.gov
Digital Trade
Disclaimer
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https://crsreports.congress.gov | IF10770 · VERSION 2 · UPDATED