Digital Trade

Digital Trade

Updated December 3, 2020
Digital Trade
Background
about the rise of digital trade barriers, divergent rules, and
The rapid growth of digital technologies in recent years has
national standards around the globe that could impair U.S.
facilitated economic activity and created new opportunities
digital sales or undermine U.S. technological leadership.
for U.S. consumers and businesses. For example,
Selected Digital Trade Issues
consumers today access e-commerce, social media,
telemedicine, and other offerings not imagined 30 years
Protectionist policies may erect barriers to digital trade, or
ago. Firms of all sizes and in every industry use digital
damage trust in the underlying digital economy, and can
services and technologies to drive internal efficiencies and
result in the fragmentation of the internet or discriminatory
better compete globally. For example, businesses use
trade treatment. As with traditional trade barriers, digital
advanced technology to reach new markets, track global
trade constraints can be classified as tariff or nontariff
supply chains, analyze big data, and create new products
barriers and take many forms (see Text Box). What some
and services. At the same time, new technologies raise new
policymakers see as protectionist, however, others may
trade policy issues, including the lack of common
view as necessary to safeguard certain domestic policy
disciplines to help govern such trade, the emergence of
interests. Prominent trade issues include:
diverging standards and new trade barriers, and broader
Internet Sovereignty. In some nations, the government
public policy questions about online information, all issues
seeks strict control over digital data within its borders, such
of active congressional interest.
as what information people can access online, and how
Data and data flows form a pillar of innovation and
information is shared inside and outside its borders,
economic growth. Trade in manufactured goods and
creating digital trade barriers. For example, firms operating
agricultural products often depends on cross-border data
in China experience a variety of barriers, such as censorship
flows. For example, manufacturers may communicate with
(the so-called “Great Firewall”), requirements to use local
global customers and suppliers via the internet. Farmers
standards, and national security reviews; Russian laws ban
may use real-time satellite data to optimize the productivity
virtual private networks and require providers of encrypted
of crops and soil. Digitally-delivered service exports also
messaging services to potentially share users’ chats.
rely on cross-border data flows.
Localization and Cross-Border Data Flow Limits.
According to the Bureau of Economic Analysis, in 2018,
Organizations seek efficiency and market access by freely
U.S. exports of information and communication technology
moving data across national borders or by using cloud
(ICT) goods and services were $148 billion and $80 billion,
services. Regulators seeking to promote security and
respectively. In addition, exports of potential digitally-
personal data privacy, or support domestic firms, may enact
enabled services were $499 billion, comprising over half of
mandates for local data storage or use of local partners or
U.S. services exports. The volume of global data flows is
inputs, raising costs for foreign firms. A 2017 survey by the
growing faster than trade or financial flows, and its positive
U.S. International Trade Commission (USITC) found that
gross domestic product (GDP) contribution offsets the
data localization was the most-cited policy measure seen to
lower growth rates of trade and foreign direct investment
impede digital trade. For example, the European Union’s
(FDI). The Coronavirus Disease 2019 (COVID-19)
data protection regulation places limits on the use and
pandemic has highlighted the importance of digital trade in
cross-border transfer of individuals’ personal data while
the global economy (see Text Box).
China’s Cybersecurity Law restricts cross-border data
Digital Trade and COVID-19
transfers and broad-based data localization mandates.
The COVID-19 pandemic, with social distancing enforcement,
Cybertheft or Forced Technology Transfer. Infringement
lockdowns, and other measures, has led to spikes in digital
of intellectual property rights (IPR) or lack of IPR
trade, both business-to-consumers and business-to-business.
enforcement may limit a company’s ability to benefit fully
The increases reflected a surge in online shopping, social
from its innovations and investments, such as trade secrets,
media use, internet telephony, teleconferencing and
proprietary algorithms, or source code. The costs associated
teleservices (such as education and medicine), and streaming
with IPR infringement in the digital environment are
of videos and films. The World Trade Organization (WTO)
difficult to quantify but are considered to be significant,
noted that the pandemic has underscored the importance of
potentially exceeding the volume of sales through
digital technologies in general, but also vulnerabilities,
traditional physical markets or legitimate downloads.
including the digital divide, and trade barriers across the globe.
Regulatory Issues. Governments may impose requirements
deemed overly burdensome by firms and which increase
In general, the United States supports an open, secure,
costs, or that favor local firms. Regulations may be applied,
interoperable, and reliable internet, including the free flow
for example, in a discriminatory or overly trade-restrictive
of online information. However, some members of
manner, creating a trade barrier for foreign firms. For
Congress and industry stakeholders raise growing concerns
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Digital Trade
example, India has compulsory registration of all ICT
addressing digital trade facilitation barriers (e.g., use of
goods imports with the national standards agency.
technology for customs documentation and inspection) to
Digital Trade in Trade Agreements
further promote e-commerce, building on existing WTO
commitments. The parties have reportedly made progress
The United States has sought to combat barriers to digital
on some issues, like spam and e-signatures, while
trade through negotiation of rules and disciplines in free
disagreements continue in more contentious areas, such as
trade agreements (FTAs) and in multilateral fora. Congress
privacy and removing discriminatory barriers to cross-
established U.S. trade negotiating objectives on digital trade
border data flows.
in the 2015 Trade Promotion Authority (P.L. 114-26). The
objectives seek to remove barriers to trade in digital goods
U.S. FTA Negotiations
and services, ensure cross-border data flows, and eliminate
In FTA negotiations, the United States has set new digital
and prevent localization measures, among other objectives.
trade rules and market openings, balancing innovation and
World Trade Organization (WTO)
an open internet with national security and privacy goals.
The WTO was established in 1995, before the current reach
U.S.-Mexico-Canada Agreement (USMCA). The
of the internet and the explosive growth of global data
renegotiated North American Free Trade Agreement
flows. Since then, no comprehensive agreement has been
(NAFTA) includes provisions on digital trade and the free
reached on digital trade. Some existing WTO agreements
flow of information in multiple chapters of the agreement,
cover aspects of digital trade. To date, WTO members have
and it addresses a wide variety of digital trade barriers.
agreed to a temporary moratorium on customs duties on
Provisions prohibit customs duties on digital products;
electronic transmissions. Separately, some countries, like
commit to nondiscrimination; and restrict cross-border data
France, have imposed unilateral digital services taxes on
flow limitations, localization requirements, forced
digital economy firms; negotiations to update the global tax
disclosure of source code or algorithms, technology
system and create a new digital tax framework are ongoing.
transfer, or access to proprietary cryptography information.
It also contains measures related to electronic signatures,
The WTO General Agreement on Trade in Services
consumer choice, authentication, and combatting IPR theft.
(GATS) contains obligations on nondiscrimination and
Other provisions allow for some public policy exceptions.
transparency on covered service sectors and modes of
supply. Digital trade, data flows, and other trade barriers are
USMCA requires parties to establish civil and criminal
not specifically included.
procedures and penalties for trade secret theft, including
The WTO Information Technology Agreement (ITA)
cybertheft, the establishment of consumer protection laws,
eliminates tariffs on a specific list of ICT goods. In 2015,
and a legal privacy framework to protect personal
the United States and over 50 other participants agreed to
information that reflects international guidelines. To
expand the ITA to include newer technologies that power
balance privacy and open data flows, the parties agree to
digital trade, such as multi-component semiconductors. The
further develop and promote interoperability systems
benefits of the agreement are extended on a most-favored
between privacy regimes. USMCA also recognizes risk-
nation (MFN) basis to all WTO members.
based approaches and the need for strengthened cooperation
between governments on cybersecurity. Provisions
The WTO Agreement on Trade-Related Aspects of
encourage the use of open government data. In 2019,
Intellectual Property Rights (TRIPS) provides minimum
USITC estimated the agreement may result in ad valorem
standards of IPR protection and enforcement, including
equivalent tariff declines of 0.6% to 4.5% for U.S. exports.
online, for copyrights and related rights, trademarks,
patents, trade secrets, and other forms of IP.
U.S.-Japan Digital Trade Agreement. In October 2019,
the United States and Japan signed two agreements,
Examples of Barriers to Digital Trade
including one on digital trade that parallels the USMCA.

The USTR has called it the “most comprehensive and high

High tariffs and/or low de minimis threshold
-

standard trade agreement” negotiated on digital trade

Discrimination against digital products/services

Localization requirements (e.g., data or computing facilities)
barriers and could set precedents for other ongoing talks.

Cross-border data flow limitations
Issues for Congress

Mandated use of local technology, content, or supplier

As Congress considers addressing digital trade, it may

Discriminatory, unique standards or burdensome testing

consider a number of issues, including the following:

Filtering or blocking

IPR infringement
 Do USMCA and U.S.-Japan Digital Trade Agreement

Cybertheft of trade secrets
provisions effectively achieve U.S. negotiating objectives, and

Requirements for source code disclosure, transfer of
should they be used as a template for future U.S. FTAs?
technology, or proprietary cryptography information
 How should FTAs be structured to strike the right balance

Cross-border electronic card payment limitations
among digital trade liberalization, privacy, and broader
national security considerations?
WTO E-Commerce Plurilateral. A group of more than 80
 How can the United States use the WTO e-commerce
WTO members are negotiating a plurilateral agreement on
negotiations to set international rules and standards for cross-
digital trade, aiming to set new international trade rules.
border data flows, or emerging technologies?
The U.S. government seeks a high-standard agreement that
Also see CRS Report R44565, Digital Trade and U.S.
includes enforceable obligations. Though developed and
Trade Policy, coordinated by Rachel F. Fefer.
developing countries, including China, are participating,
others, such as India, have opted out. Some parties propose
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Digital Trade

IF10770
Rachel F. Fefer, Analyst in International Trade and
Finance

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https://crsreports.congress.gov | IF10770 · VERSION 4 · UPDATED