TPP: Digital Trade Provisions

TPP: Digital Trade Provisions

Updated September 7, 2017
TPP: Digital Trade Provisions
Background
negotiating objectives in the June 2015 Trade Promotion
On January 24, 2017, President Trump withdrew the United
Authority (TPA) legislation (P.L. 114-26). TPP includes
States from the Trans-Pacific Partnership (TPP). The TPP
provisions addressing principal U.S. trade negotiating
was a proposed free trade agreement (FTA) among 12
objectives to prohibit data localization requirements and
countries in the Asia-Pacific region, including the United
protect cross-border data flows. Despite the U.S.
States. The Obama Administration cast TPP as a
withdrawal, TPP’s digital trade provisions may continue to
comprehensive and high standard agreement with economic
influence U.S. trade policy. Members of Congress and
and strategic significance for the United States. Some U.S.
Trump Administration officials have expressed interest in
stakeholders argue the TPP withdrawal coupled with
drawing from the TPP commitments, particularly on digital
ongoing FTA negotiations that do not involve the United
trade, in future U.S. negotiations, including the NAFTA
States may negatively affect U.S. export competitiveness
renegotiation.
and leadership in establishing new trade disciplines. The
remaining 11 parties may move forward to ratify the TPP
Key Provisions
without U.S. participation (TPP-11). The proposed TPP, as
Overall, the agreement aims to promote digital trade, the
negotiated by the United States, includes new commitments
free flow of information, and ensure an open internet.
to address barriers to digital trade (see text box).
Provisions related to digital trade are found in chapters on
electronic commerce, financial services, investment,
Digital trade, a growing part of the U.S. and global
telecommunications, intellectual property rights (IPR), and
economy, includes not only end-products such as movies or
technical barriers to trade (TBT).
video games, but also is a means to facilitate economic
activity, potentially enhancing productivity and overall
In general, technology companies, telecommunications
competitiveness. Examples of digital trade include online
firms, and industry groups continue to support the TPP
shopping; transmission of information needed by
digital trade provisions. Several stakeholders raise concerns
manufacturers to manage global value chains;
over exceptions to the cross-border data-flows and
communication channels from email to voice over internet
localization provisions. Other stakeholders believe that the
protocol (VoIP); and financial services used in e-commerce
current provisions go too far and may limit a government’s
or electronic trading.
flexibility to adopt strict e-commerce privacy laws.
A U.S. International Trade Commission study estimated the
E-Commerce
U.S. digital economy was $711 billion of U.S. GDP in
Cross-border data flows. TPP would guarantee the cross-
2011. In 2014, the United States exported $400 billion in
border transfer of information and would prohibit
digitally-deliverable services and imported $241 billion,
computing facility localization requirements for all sectors,
creating a surplus of $159 billion, and comprising over half
except financial services and government procurement (see
of all U.S. services trade. Global cross-border data flows
below). These provisions would protect a firm’s ability to
grew 45 times from 2005-2014, according to the McKinsey
provide and use cloud services and function more
Global Institute.
efficiently, and would block localization requirements that
could require firms to have in-country servers and data
Figure 1. Growth in Global Data Flows
centers to store data. Specific exceptions are included for
achieving legitimate public policy objectives to allow
governments to regulate the transfer and storage of certain
data, such as health records, provided such measures are not
arbitrary or a disguised restriction on trade.
Regulators may view local data storage as a potentially
necessary defense to maintain safety, security, or privacy.
The tension between industry and cautious regulators
represents differing priorities between companies seeking
growth in new markets and innovation, as opposed to those
responsible for establishing regulations and oversight.

While data localization requirements are not currently in
Source: McKinsey Global Institute, Digital Globalization: The New Era
place in TPP countries, observers note that Malaysia and
of Global Flows, March 2016.
Vietnam are considering imposing them, which TPP would
prohibit, apart from the exceptions noted above. In addition,
Congress noted the importance of digital trade and the
some stakeholders note concern about potential future TPP
Internet as a trading platform in setting U.S. trade
https://crsreports.congress.gov

TPP: Digital Trade Provisions
parties including Indonesia and South Korea, which have or
government use or access to government-controlled
are considering data localization requirements.
network, such as financial networks and instruments.
Customs Duties and Non-Discrimination. Similar to
Mobile. For the first time, the TPP would cover mobile
recent U.S. FTAs, TPP would prohibit customs duties on or
service providers. TPP would also promote cooperation on
discrimination against digital products.
charges for international roaming services.
E-signatures. TPP would require parties to identify
Telecommunications. E-commerce and digital trade rely
electronic signatures as valid, facilitating trade.
on transmission via telecommunications services. The TPP
Source Code. For the first time, TPP would prohibit
would only apply to public telecommunications services,
requiring a provider to disclose source code for mass-
with obligations to provide suppliers non-discriminatory
market software or products, but specifically excludes
access to public telecommunications services, networks,
critical infrastructure and patent filing applications.
infrastructure, and government-controlled resources like
spectrum. TPP would allow suppliers to choose their
technology as long as it meets legitimate public policy
Digital Innovations in TPP
requirements. TPP also would obligate parties to prevent

Prohibits cross-border data flows restrictions and data
anti-competitive behavior, establish independence of
localization requirements, except for financial services and
regulators from the regulated, and require regulatory
government procurement.
transparency.

Prohibits requirements for source code disclosure or
transfer as a condition for market access, with exceptions.
Financial Services Data Flows

The e-commerce provisions for this sector are addressed in

Requires parties to have online consumer protection and
anti-spam laws, and a legal framework on privacy.
the separate financial services chapter. Similar to the U.S.-
South Korea FTA, the TPP would allow for cross-border

Prohibits requiring technology transfer or access to
data flows, but would not prohibit localization
proprietary information for products using cryptography.
requirements. Financial services firms are concerned about

Clarifies IPR enforcement rules to provide criminal penalties
the distinct treatment of their sector with respect to e-
for trade secret cybertheft.
commerce because, like many other industries, they rely on

Encourages cooperation between parties on e-commerce to
cross-border data flows to ensure data security, create
assist small and medium sized enterprises (SMEs), and on
efficiencies and cost savings through economies of scale,
privacy and consumer protection.
and use cloud computing. The localization exclusion could

affect companies in other industries that depend on

Promotes cooperation on cybersecurity.
transmitting financial data across borders, such as

Safeguards cross-border electronic card payment services.
companies that offer customer financing. Localization

Covers mobile service providers and promotes cooperation
regulations could increase costs, open additional
for international roaming charges.
cybersecurity risks, and may serve as a deterrent for firms
seeking to enter new markets. Defenders of these practices
Consumer Protection. For the first time, TPP would
claim they increase local control and data privacy.
require governments to adopt or maintain online consumer
Critics of the exclusion of financial services from the e-
protection laws against fraudulent and deceptive
commerce chapter argue that the prudential exception in the
commercial activities and take anti-spam measures.
financial services chapter provides regulators with
Privacy. For the first time, TPP would require parties to
sufficient safeguards and flexibility. On May 25, 2016, the
have a legal framework to protect personal information.
U.S. Treasury Secretary announced a proposal to resolve
TPP critics view the provisions as vague, without an
the issue in future trade agreements, including the potential
explicit minimum standard for privacy protection. TPP
plurilateral Trade in Services Agreement (TiSA).
supporters note that TPP includes a reference to take into
account “guidelines of relevant international bodies” that
Issues for Congress
would include the Asia-Pacific Economic Cooperation
As Congress considers addressing digital trade provisions
(APEC) Privacy Framework.
for free trade agreements, it may wish to consider a number
SME. TPP encourages, but would not require, cooperation
of issues including:
to assist SMEs with e-commerce.
 How would TPP have advanced U.S. digital trade
negotiating objectives?
Cybersecurity. For the first time, the agreement would

promote inter-governmental cooperation on cybersecurity,
Should the North America Free Trade Agreement
(NAFTA) renegotiations reflect the digital trade
such as capacity building and information sharing.
provisions from the proposed TPP?
Other Provisions
 Does the proposal from the U.S. Treasury
sufficiently address congressional and industry
IPR. For the first time, TPP IPR enforcement obligations,
concerns on financial services data localization for
including for copyright, explicitly cover infringement in the
digital environment and would commit parties to establish
the ongoing NAFTA renegotiations and any future
negotiations?
criminal procedures and penalties for trade secret theft,
including cyber theft.
Rachel F. Fefer, Analyst in International Trade and
Cryptography. TPP would prohibit requiring technology
Finance
transfer or access to proprietary information for commercial
IF10390
products that use cryptography, but excludes products for

https://crsreports.congress.gov

TPP: Digital Trade Provisions

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