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