What it Means for the Digital Economy

Claude Barfield
Former Consultant, Office of the U.S. Trade Representative

There has been a good deal of hype touting the recently concluded Trans-Pacific Partnership (TPP) agreement as the first “21st Century” trade pact.   Whether it lives up to this high accolade is currently under debate, both in the United States and among the 11 other TPP member states.  But in one area—E-Commerce—there is no doubt that the negotiators did agree to provisions that strongly advance liberalization of Internet trade flows and the enhancement of commerce and investment through the medium of cyberspace.    

The E-Commerce chapter consists of the following new rules and mandates (among others):

  • Cross-Border Data Transfers—Article 14.11 requires TPP governments to allow the cross-border transfer of information, including personal information, for the conduct of business.  The only exception to this obligation is in the pursuit of a “legitimate public policy objective.”  The exception, however, cannot be undertaken in a manner that constitutes arbitrary or unjustifiable discrimination.
  • Forced Localization—Article 14.13 no TPP may require a business to locate computing facilities (including servers and storage devices) within its territory, with the same public necessity provision described above.  US officials state that this provision is the first in a free trade agreement;
  • Transfer of Source Code—Article 14.17 prohibits the requirement to transfer software source codes as a condition of doing business or investing in a TPP country. There is an exclusion from this rule for “critical infrastructure” (undefined).
  • Customs Duties on Internet Traffic—Article 14.3 prohibits the imposition of customs duties on cross electronic transmissions.  This prohibition, however, does not preclude TPP countries from imposing internal taxes or fees on content transmitted electronically.
  • Privacy and Consumer Protection—In addition, other sections of the chapter contain consumer protection requirements, as well as mandates to provide domestic users with full information concerning their privacy rights.

The entire E-Commerce chapter comes under the full scope of the TPP dispute settlement system.

If the TPP is ratified by the TPP members states and comes into force, it will have far-reaching strategic implications for both the world trading system and the future of the Internet.   Even before expected expansion to other Asian and non-Asian nations (Korea, Thailand, Indonesia, Colombia, as examples), the TPP already covers one quarter of world trade and about 40 percent of world GDP.  As such, future rules for Internet-related trade and investment will be greatly influenced and directed by established TPP rules.  This is particularly true in that international rules and norms for the Internet are just in their infancy, and thus the timing of the TPP is crucially important.

Finally, the next few years will see a huge growth in Internet traffic and utilization for key commercial goals.  In 2005, there were an estimated one billion Internet users; that number doubled by 2010.  It reached three billion in 2014, and is expected to growth to over five billion by 2020.  President Obama has warned, correctly, that if the U.S. and its TPP trading partners don’t write the “rules of the road” for the Internet, others (read: China) will.  Should the fractured U.S. political situation result in a failed TPP, the country will pay a heavy price, both economically and strategically.

The Author is Claude Barfield

Claude Barfield, former consultant for the Office of the U.S. Trade Representative, is a Resident Scholar at the American Enterprise Institute and author the recent working paper, When Tech and Trade Collide, part of the AEI's Global Internet Strategy project.

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