Digital Trade and U S Trade Policy May 21 2019 Congressional Research Service https crsreports congress gov R44565 Digital Trade and U S Trade Policy Summary As the global internet develops and evolves digital trade has become more prominent on the global trade and economic policy agenda The economic impact of the internet was estimated to be $4 2 trillion in 2016 making it the equivalent of the fifth-largest national economy The digital economy accounted for 6 9% of current‐dollar gross U S domestic product GDP in 2017 Digital trade has been growing faster than traditional trade in goods and services Congress has an important role to play in shaping global digital trade policy from oversight of agencies charged with regulating cross-border data flows to shaping and considering legislation implementing new trade rules and disciplines through trade negotiations Congress also works with the executive branch to identify the right balance between digital trade and other policy objectives including privacy and national security Digital trade includes end-products such as downloaded movies and products and services that rely on or facilitate digital trade such as productivity-enhancing tools like cloud data storage and email In 2017 U S exports of information and communications technology-enabled services excluding digital goods were an estimated $439 billion Digital trade is growing on a global basis contributing more to global domestic product GDP than financial or merchandise flows The increase in digital trade raises new challenges in U S trade policy including how to best address new and emerging trade barriers As with traditional trade barriers digital trade constraints can be classified as tariff or nontariff barriers In addition to high tariffs barriers to digital trade may include localization requirements cross border data flow limitations intellectual property rights IPR infringement forced technology transfer web filtering economic espionage and cybercrime exposure or state-directed theft of trade secrets China’s policies in particular such as those on internet sovereignty and cybersecurity pose challenges for U S companies Digital trade issues often overlap and cut across policy areas such as IPR and national security this raises questions for Congress as it weighs different policy objectives The Organisation for Economic Co-operation and Development OECD points out three potentially conflicting policy goals in the internet economy 1 enabling the internet 2 boosting or preserving competition within and outside the internet and 3 protecting privacy and consumers more generally While no multilateral agreement on digital trade exists in the World Trade Organization WTO other WTO agreements cover some aspects of digital trade Recent bilateral and plurilateral agreements have begun to address digital trade rules and barriers more explicitly For example the proposed U S -Mexico-Canada Agreement USMCA and ongoing plurilateral discussions in the WTO on a potential e-commerce agreement could address digital trade barriers to varying degrees Digital trade is also being discussed in a variety of international forums providing the United States with multiple opportunities to engage in and shape global norms With workers in the high-tech sector in every U S state and congressional district and over twothirds of U S jobs requiring digital skills Congress has an interest in ensuring and developing the global rules and norms of the internet economy in line with U S laws and norms and in establishing a U S trade policy on digital trade that advances U S interests Congressional Research Service Digital Trade and U S Trade Policy Contents Introduction 1 Role of Digital Trade in the U S and Global Economy 2 Economic Impact of Digital Trade 5 Digitization Challenges 8 Digital Trade Policy and Barriers 10 Tariff Barriers 12 Nontariff Barriers 13 Localization Requirements 13 Intellectual Property Rights IPR Infringement 15 National Standards and Burdensome Conformity Assessment 17 Filtering Blocking and Net Neutrality 18 Cybersecurity Risks 18 U S Digital Trade with Key Trading Partners 20 European Union 20 EU-U S Privacy Shield 22 General Data Protection Regulation GDPR 23 Digital Single Market DSM 23 China 24 Internet Governance and the Concept of “Internet Sovereignty” 26 Cyber-Theft of U S Trade Secrets 26 Cybersecurity Laws 28 Section 301 Action against China over Intellectual Property and Innovation Issues 29 Digital Trade Provisions in Trade Agreements 31 WTO Provisions 31 General Agreement on Trade in Services GATS 32 Declaration on Global Electronic Commerce 32 Information Technology Agreement ITA 32 Agreement on Trade-Related Aspects of Intellectual Property Rights TRIPS 32 World Intellectual Property Organization WIPO Internet Treaties 33 WTO Plurilateral Effort 34 U S Bilateral and Plurilateral Agreements 35 Existing U S Free Trade Agreements FTAs 35 United States-Mexico-Canada Agreement USMCA 36 Other International Forums for Digital Trade 36 Issues for Congress 38 Figures Figure 1 Effect on World GDP percent 2 Figure 2 Snapshot of Most Popular Websites 3 Figure 3 What is Digital Trade 5 Figure 4 Select U S -EU Cross-Border E-Commerce Purchases 20 Figure 5 Digitally Deliverable Service Exports 2017 21 Figure 6 Digitally Deliverable Services Incorporated into Global Value Chains 21 Congressional Research Service Digital Trade and U S Trade Policy Figure 7 The U S and China Digital Trade Markets 24 Figure 8 Three Rounds of U S -China Tariff Hikes in 2018 31 Figure A-1 Levels of Perceived Digital Trade Barriers in Selected Countries 40 Tables Table 1 AmCham China Business Survey Percent of Respondents who said Certain Chinese IT Policies Affected their Operations and Competitiveness in China Somewhat or Severely 25 Appendixes Appendix Digital Trade Barriers 39 Contacts Author Information 41 Acknowledgments 41 Congressional Research Service Digital Trade and U S Trade Policy Introduction The rapid growth of digital technologies in recent years has created new opportunities for U S consumers and businesses but also new challenges in international trade For example consumers today access e-commerce social media telemedicine and other offerings not imagined thirty years ago Businesses use advanced technology to reach new markets track global supply chains analyze big data and create new products and services New technologies facilitate economic activity but also create new trade policy questions and concerns Data and data flows form a pillar of innovation and economic growth The “digital economy” accounted for 6 9% of U S GDP in 2017 including 1 information and communications technologies ICT sector and underlying infrastructure 2 digital transactions or e‐commerce and 3 digital content or media 1 The digital economy supported 5 1 million jobs or 3 3% of total U S employment in 2017 and almost two-thirds of jobs created in the United States since 2010 required medium or advanced levels of digital skills 2 As digital information increases in importance in the U S economy issues related to digital trade have become of growing interest to Congress While there is no globally accepted definition of digital trade the U S International Trade Commission USITC broadly defines digital trade as follows The delivery of products and services over the Internet by firms in any industry sector and of associated products such as smartphones and Internet-connected sensors While it includes provision of e-commerce platforms and related services it excludes the value of sales of physical goods ordered online as well as physical goods that have a digital counterpart such as books movies music and software sold on CDs or DVDs 3 The rules governing digital trade are evolving as governments across the globe experiment with different approaches and consider diverse policy priorities and objectives Barriers to digital trade such as infringement of intellectual property rights IPR or protective industrial policies often overlap and cut across sectors In some cases policymakers may struggle to balance digital trade objectives with other legitimate policy issues related to national security and privacy Digital trade policy issues have been in the spotlight recently due in part to the rise of new trade barriers heightened concerns over data privacy and an increasing number of cybertheft incidents that have affected U S consumers and companies These concerns may raise the general U S interest in promoting or restricting cross-border data flows and in enforcing compliance with existing rules Congress has an interest in ensuring the global rules and norms of the internet economy are in line with U S laws and norms Trade negotiators continue to explore ways to address evolving digital issues in trade agreements including in the proposed U S -Mexico-Canada Agreement USMCA Congress has an important role in shaping digital trade policy including oversight of agencies charged with regulating crossborder data flows as part of trade negotiations and in working with the executive branch to identify the right balance between digital trade and other policy objectives 1 U S Bureau of Economic Analysis Measuring the Digital Economy An Update Incorporating Data from the 2018 Comprehensive Update of the Industry Economic Accounts March 2018 https www bea gov research papers 2018 defining-and-measuring-digital-economy Note BEA did not include partially digital items such as sharing economy services in its estimates 2 Penny Pritzker and John Engler Director Edward Alden The Work Ahead Machines Skills and U S Leadership in the Twenty-First Century Independent Task Force Report The Council for Foreign Relations April 2018 3 Ibid and U S International Trade Commission Global Digital Trade 1 Market Opportunities and Key Foreign Trade Restrictions August 2017 p 33 https www usitc gov publications 332 pub4716 pdf Congressional Research Service 1 Digital Trade and U S Trade Policy This report discusses the role of digital trade in the U S economy barriers to digital trade digital trade agreement provisions and negotiations and other selected policy issues Role of Digital Trade in the U S and Global Economy The internet is not only a facilitator of international trade in goods and services but is itself a platform for new digitally-originated services The internet is enabling technological shifts that are transforming businesses According to one estimate the volume of global data flows sending of digital data such as from streaming video monitoring machine operations sending communications is growing faster than trade or financial flows One analysis forecasts the global flows of goods foreign direct investment FDI and digital data will add 3 1% to gross domestic product GDP from 2015-2020 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 FDI see Figure 1 4 Focusing domestically the Bureau of Economic Analysis BEA estimates that from 1997-2017 real value added for the digital economy outpaced overall growth in the economy each year and in 2017 the real value-added growth of the digital economy accounted for 25% of total real GDP growth 5 Figure 1 Effect on World GDP percent Source Gary Clyde Hufbauer and Zhiyao Lu “Can Digital Flows Compensate for Lethargic Trade and Investment ” Peterson Institute for International Economics November 28 2018 Notes Global internet traffic measured in petabyte per month Merchandise trade and FDI are normalized by dividing flows by world GDP data flow is normalized by dividing flows by world population Gary Clyde Hufbauer and Zhiyao Lucy Lu “Can Digital Flows Compensate for Lethargic Trade and Investment ” Peterson Institute of International Economics November 28 2018 5 U S Bureau of Economic Analysis Measuring the Digital Economy An Update Incorporating Data from the 2018 Comprehensive Update of the Industry Economic Accounts March 2018 p 6 4 Congressional Research Service 2 Digital Trade and U S Trade Policy The increase in the digital economy and digital trade parallels the growth in internet usage globally According to one study over half of the world’s population use the internet including 95% of people in North America 6 As of 2017 75% of U S households use wired internet access but an increasing number rely on mobile internet access as the internet is integrated into people’s everyday lives 72% of U S adults own a smartphone 7 As of the end of 2018 approximately 40% of internet traffic in the United States came from mobile devices 8 Each day companies and individuals across the United States depend on the internet to communicate and transmit data via various media and channels that continue to expand with new innovations see Figure 2 Figure 2 Snapshot of Most Popular Websites December 2018 Millions of unique U S visitors Source Statistica com Note Examples of web properties owned by multinational companies Cross-border data and communication flows are part of digital trade they also facilitate trade and the flows of goods services people and finance which together are the drivers of globalization and interconnectedness The highest levels reportedly are those flows between the United States and Western Europe Latin America and China Efforts to impede cross-border data flows could decrease efficiency and other potential benefits of digital trade Powering all these connections and data flows are underlying ICT 9 ICT spending is a large and growing component of the international economy and essential to digital trade and innovation 6 Internet World Stats World Internet Usage and Population Statistics June 30 2018 https internetworldstats com stats htm 7 U S International Trade Commission Global Digital Trade 1 Market Opportunities and Key Foreign Trade Restrictions Publication Number 4716 Investigation Number 332-561 August 2017 p 47-49 https www usitc gov publications 332 pub4716 pdf 8 Statistica “Percentage of mobile device website traffic in the United States from 1 st quarter 2015 to 4th quarter 2018 ” 2019 https www statista com statistics 683082 share-of-website-traffic-coming-from-mobile-devices-usa 9 ICT is an umbrella term that includes any communication device or application including radio television cellular phones computer and network hardware and software satellite systems and associated services and applications Congressional Research Service 3 Digital Trade and U S Trade Policy According to the United Nations world trade in ICT physical goods grew to $2 trillion in 2017 with U S ICT goods exports over $146 billion 10 Semiconductors a key component in many electronic devices are a top U S ICT export Global sales of semiconductors were $468 8 billion in 2018 an increase of 6 81% over the prior year 11 U S -based firms have the largest global market share with 45% and accounted for 47 5% of the Chinese market Given the importance of semiconductors to the digital economy and continued advances in innovation countries such as China are seeking to grow their own semiconductor industry to lessen their dependence on U S exports ICT services are outpacing the growth of international trade in ICT goods The OECD estimates that ICT services trade increased 40% from 2010 to 2016 The United States is the fourth-largest OECD exporter of ICT services after Ireland India and the Netherlands 12 ICT services include telecommunications and computer services as well as charges for the use of intellectual property e g licenses and rights ICT-enabled services are those services with outputs delivered remotely over ICT networks such as online banking or education ICT services can augment the productivity and competitiveness of goods and services In 2017 exports of ICT services grew to $71 billion of U S exports while services exports that could be ICT-enabled were another $439 billion demonstrating the impact of the internet and digital revolution 13 ICT and other online services depend on software the value added to U S GDP from support services and software has increased over the past decade relative to that of telecommunications and hardware 14 According to one estimate software contributed more than $1 14 trillion to the U S value added to GDP in 2016 an increase of 6 4% over 2014 and the U S software industry accounted for 2 9 million jobs directly in 2016 15 Internet-advertising an industry that would not exist without ICT generated an additional 10 4 million U S jobs 16 10 https unctadstat unctad org wds TableViewer tableView aspx ReportId 15850 Semiconductor Industry Association 2019 SIA Factbook 2019 12 OECD 2017 OECD Digital Economy Outlook 2017 OECD Publishing Paris http dx doi org 10 1787 9789264276284-en 13 According to the Department of Commerce potentially-ICT enabled services are those that “can predominantly be delivered remotely over ICT networks a subset of which are actually delivered via that method” and U S Bureau of Economic Analysis BEA Table 3 1 U S Trade in ICT and Potentially ICT-Enabled Services by Type of Service October 19 2018 14 U S Bureau of Economic Analysis Measuring the Digital Economy An Update Incorporating Data from the 2018 Comprehensive Update of the Industry Economic Accounts March 2018 p 9 15 EIU estimates “The Growing $1 Trillion Economic Impact of Software ” software org 16 John Deighton “Economic Value of the Advertising-Supported Internet Ecosystem ” 2017 https www iab com wpcontent uploads 2017 03 Economic-Value-Study-2017-FINAL2 pdf 11 Congressional Research Service 4 Digital Trade and U S Trade Policy Figure 3 What is Digital Trade Examples of international digital trade Source CRS Note The above graphic is illustrative only and is not based on a real business or reflective of all aspects of digital trade Economic Impact of Digital Trade As the internet and technology continue to develop rapidly increasing digitization affects finance and data flows as well as the movement of goods and people Beyond simple communication digital technologies can affect global trade flows in multiple ways and have broad economic impact see Figure 3 First digital technology enables the creation of new goods and services such as e-books online education or online banking services Digital technologies may also add value by raising productivity and or lowering the costs and barriers related to flows of traditional goods and services For example companies may rely on radio-frequency identification RFID Congressional Research Service 5 Digital Trade and U S Trade Policy tags for supply chain tracking 3-D printing based on data files or devices or objects connected via the Internet of Things see text box In addition digital platforms serve as intermediaries for multiple forms of digital trade including e-commerce social media and cloud computing In these ways digitization pervades every industry sector creating challenges and opportunities for established and new players Looking at digital trade in an international context approximately 12% of physical goods are traded via international e-commerce 17 Global e-commerce grew from $19 3 trillion in 2012 to $27 7 trillion in 2016 of which 86% was business-to-business B2B 18 One source estimates that cross-border business-to-consumer B2C e-commerce sales will reach approximately $1 trillion by 2020 19 These estimates do not quantify the additional benefits of digitization upon business efficiency and productivity or of increased customer and market access which enable greater volumes of international trade for firms in all sectors of the economy Digitization efficiencies have the potential to both increase and decrease international trade For example one analysis found that logistics optimization technologies could reduce shipping and customs processing times by 16% to 28% boosting overall trade by 6% to 11% by 2030 at the same time however automation Artificial Intelligence AI and 3-D printing could enable more local production thereby reducing global trade by as much as 10% by 2030 20 The overall impact of digitization has yet to be seen One study coined the term “digital spillovers” to fully capture the digital economy and estimated the global digital economy including such spillovers was $11 5 trillion in 2016 or 15 5% of global GDP 21 Their analysis indicated that the long-term return on investment ROI for digital technologies is 6 7 times that of nondigital investments 22 Blockchain is one emerging software technology some companies are using to increase efficiency and transparency and lower supply chain costs that depends on open data flows of digital trade 23 For example in an effort to streamline processes save costs and improve public health outcomes Walmart and IBM built a blockchain platform to increase transparency of global supply chains and improve traceability for certain imported food products 24 The initiative aims to expand to include several multinational food suppliers farmers and retailers and depends on connections via the Internet of Things and open international data flows With increased applications the Internet of Things may have a global economic impact of as much as $11 1 trillion per year according to one study 25 Jacques Bughin and Susan Lund “The ascendancy of international data flows ” VOX January 9 2017 U S International Trade Commission Global Digital Trade 1 Market Opportunities and Key Foreign Trade Restrictions Publication Number 4716 Investigation Number 332-561 August 2017 p 13 https www usitc gov publications 332 pub4716 pdf 19 Susan Lund et al “Globalization in transition The future of trade and value chains ” McKinsey January 2019 20 Ibid 21 Huawei Technologies and Oxford Economics Digital Spillover http www huawei com minisite gci en digitalspillover files gci_digital_spillover pdf 22 Ibid 23 For more on blockchain see CRS Report R45116 Blockchain Background and Policy Issues by Chris Jaikaran 24 Roger Aitken “IBM Walmart Launching Blockchain Food Safety Alliance In China With Fortune 500’s JD com ” Forbes December 14 2017 25 Alexandre Menard “How can we recognize the real power of the Internet of Things ” McKinsey November 2017 17 18 Congressional Research Service 6 Digital Trade and U S Trade Policy Key Emerging Technologies Internet of Things IoT “encompass es all devices and objects whose state can be read or altered via the internet with or without the active involvement of individuals The internet of things consists of a series of components of equal importance—machine-to-machine communication cloud computing big data analysis and sensors and actuators Their combination however engenders machine learning remote control and eventually autonomous machines and systems which will learn to adapt and optimise themselves ”26 Blockchain “is a distributed record-keeping system each user can keep a copy of the records that provides for auditable transactions and secures those transactions with encryption Using blockchain each transaction is traceable to a user each set of transactions is verifiable and the data in the blockchain cannot be edited without each user’s knowledge Compared to traditional technologies blockchain allows two or more parties without a trusted relationship to engage in reliable transactions without relying on intermediaries or central authority e g a bank or government ”27 Artificial Intelligence AI “AI can generally be thought of as computerized systems that work and react in ways commonly thought to require intelligence such as solving complex problems in real-world situations ”28 Because of its ubiquity the benefits and economic impact of digitization are not restricted to certain geographic areas and businesses and communities in every U S state feel the impact of digitization as new business models and jobs are created and existing ones disrupted 29 One study found that the more intensively a company uses the internet the greater the productivity gain The increase in internet usage is also associated with increased value and diversity of products being sold 30 The internet and cloud services specifically has been called the great equalizer since it allows small companies access to the same information and the same computing power as large firms using a flexible scalable and on-demand model For example Thomas Publishing Co a U S mid-sized private family-owned and -operated business is transporting data from its own computer servers to data centers run by Amazon com Inc 31 Digital platforms can minimize costs and enable small and medium-sized enterprises SMEs to grow through extended reach to customers or suppliers or integrating into a global value chain GVC More than 50% of businesses globally rely on data flows for cloud computing see text box 32 Digitization of customs and border control mechanisms also helps simplify and speed delivery of goods to customers Regulators are looking to blockchain technology to improve efficiency in managing and sharing data for functions such as border control and customs processing of international shipments 33 With simpler border and customs processes more firms are able to 26 OECD 2015 OECD Digital Economy Outlook 2015 p 61 OECD Publishing Paris DOI http dx doi org 10 1787 9789264232440-2-en 27 For more information see CRS In Focus IF10810 Blockchain and International Trade by Rachel F Fefer 28 For more information see CRS In Focus IF10608 Overview of Artificial Intelligence by Laurie A Harris 29 John Wu Adams Nager and Joseph Chuzhin High-Tech Nation How Technological Innovation Shapes America’s 435 Congressional Districts ITIF November 28 2016 p 4 https itif org publications 2016 11 28 technation 30 The World Bank Group World Development Report 2016 Digital Dividends 2016 http www worldbank org en publication wdr2016 31 Jay Greene “Amazon to Launch Cloud Migration Service ” The Wall Street Journal March 15 2016 32 U S International Trade Commission Global Digital Trade 1 Market Opportunities and Key Foreign Trade Restrictions Investigation Number 332-561 August 2017 33 Commercial Customs Operations Advisory Committee COAC Trade Progress Report November 2017 Congressional Research Service 7 Digital Trade and U S Trade Policy conduct business in global markets or are more willing to do so A study of U S SMEs on the ecommerce platform eBay found that 97% export while that number is a full 100% in countries as diverse as Peru and Ukraine 34 Netflix a U S firm offering online streaming services increased its international revenue from $4 million in 2010 to more than $5 billion in 2017 35 A Local Manufacturer Grows Through Digital Trade Kirk Anton and Tricia Hudson launched their business in 2010 as a one-stop shop for heat transfer materials importing heat-applied materials and creating customized products for clients The company moved online and converted to completely digital in 2013 using services such as Google Analytics to inform their marketing campaigns Growing by more than 70% over four years in 2017 the company employed forty people in Florida Kentucky Nevada and North Dakota and boasted over 85 000 customers across the globe 36 A similar argument has been made for firms and governments in low- and middle-income countries who can take advantage of the power of the internet to foster economic development According to one official of the Asia-Pacific Economic Cooperation Forum APEC technology has enabled SMEs to open in new sectors such as ride-sharing and online order delivery services and provides them with a “bigger better opportunity to grow and learn that to join a global value chain ”37 Another study of SMEs estimated that the internet is a net creator of jobs with 2 6 jobs created for every job that may be displaced by internet technologies companies that use the internet intensively effectively doubled the average number of jobs 38 However the costs of digital trade can be concentrated on particular sectors see next section Digitization Challenges The U S digital economy supported 3 3% of total U S employment in 2017 and those jobs earned approximately one and a half times the average annual worker compensation of the overall U S economy making them attractive source for future growth 39 Software and the software industry contributes to the GDP in all 50 states with the value-added GDP of the software industry growing more than 40% in Idaho and North Carolina 40 Industries such as media and firms in urban centers account for a larger share of the benefits Many in business and research communities are only beginning to understand how to take advantage of the vast amounts of data being collected every day https www cbp gov sites default files assets documents 2017-Nov Global%20Supply%20Chain%20Subcommittee%20Trade%20Executive%20Summary%20Nov%202017 pdf 34 James Manyika Sree Ramaswamy and Somesh Khanna et al Digital America A Tale of the Haves and HaveMores McKinsey Global Institute December 2015 p 40 http www mckinsey com industries high-tech our-insights digital-america-a-tale-of-the-haves-and-have-mores 35 World Trade Organization “World Trade Report 2018 The future of world trade ” p 10 2018 https www wto org english res_e publications_e wtr18_e htm 36 Google Economic Impact United States 2017 https economicimpact google com 37 APEC “APEC’s Startup Revolution Brings the Next Big Thing ” November 2 2017 https www apec org Press Features 2017 1102_interview 38 Matthieu Pélissié du Rausas James Manyika and Eric Hazan et al Internet matters The Net’s sweeping impact on growth jobs and prosperity McKinsey Global Institute May 2011 p 21 http www mckinsey com industries hightech our-insights internet-matters 39 U S Bureau of Economic Analysis Measuring the Digital Economy An Update Incorporating Data from the 2018 Comprehensive Update of the Industry Economic Accounts March 2018 p 2 40 Software org “The Growing $1 Trillion Economic Impact of Software ” https software org reports 2017-ussoftware-impact Congressional Research Service 8 Digital Trade and U S Trade Policy However sources of “e-friction” or obstacles can prevent consumers companies and countries from realizing the full benefits of the online economy 41 Causes of e-friction can fall into four categories infrastructure industry individual and information Government policy can influence e-friction from investment in infrastructure and education to regulation and online content filtering According to some experts economies with lower amounts of e-friction may be associated with larger digital economies 42 While there are numerous positive digital dividends there are also possible negative and uneven results across populations such as the displacement of unskilled workers an imbalance between companies with and without internet access and the potential for some to use the internet to establish monopolies 43 While new technologies and new business models present opportunities to enhance efficiency and expand revenues innovate faster develop new markets and achieve other benefits new challenges also arise with the disruption of supply chains labor markets and some industries For example one study found a mismatch between workforce skills and job openings such as in Nashville TN which has an abundance of workers with music production and radio broadcasting skills but a scarcity of workers with IT infrastructure systems management and web programming skills 44 Another source notes over 11 000 open computing jobs in Michigan with average salaries of over $80 000 45 The World Bank identified policy areas to try to ensure and maintain the potential benefits of digitization Policy areas include establishing a favorable and competitive business climate developing strong human capital ensuring good governance investing to improve both physical and digital infrastructure and raising digital literacy skills According to the World Economic Forum Global Competitiveness Index 4 0 the United States is ranked at the top with a score of 85 6% compared to the global median score of 60% 46 The study identifies the key drivers of productivity as human capital innovation resilience and agility noting that future productivity depends not only on investment in technology but investment in digital skills While the United States is considered a “super innovator ” the report also notes “indications of a weakening social fabric … and worsening security situation … as well as relatively low checks and balances judicial independence and transparency ”47 With the rapid pace of technology innovation more jobs may become automated with digital skills becoming a foundation for economic growth for individual workers companies and national GDP 48 Over two-thirds of U S jobs created since 2010 require some level of digital skills 49 The OECD found that generic ICT skills are insufficient among a significant percentage 41 Paul Zwillenberg Dominic Field and David Dean Greasing the Wheels of the Internet Economy Boston Consulting Group February 2014 https www bcgperspectives com content articles digital_economy_telecommunications_greasing_wheels_internet_economy 42 Ibid 43 The World Bank Group World Development Report 2016 Digital Dividends 2016 http www worldbank org en publication wdr2016 44 Penny Pritzker and John Engler Director Edward Alden The Work Ahead Machines Skills and U S Leadership in the Twenty-First Century Independent Task Force Report Council of Foreign Relations April 2018 45 https code org promote mi 46 World Economic Forum Global Competitiveness Report 2018 p 10 http www3 weforum org docs GCR2018 05FullReport TheGlobalCompetitivenessReport2018 pdf 47 Ibid p 33 48 The World Bank Group World Development Report 2016 Digital Dividends 2016 http www worldbank org en publication wdr2016 49 Penny Pritzker and John Engler Director Edward Alden The Work Ahead Machines Skills and U S Leadership in Congressional Research Service 9 Digital Trade and U S Trade Policy of the global workforce and few countries have adopted comprehensive ICT skills strategies to help workers adapt to changing jobs 50 Digital Trade Policy and Barriers Policies that affect digitization in any one country’s economy can have consequences beyond its borders and because the internet is a global “network of networks ” the state of a country’s digital economy can have global ramifications Protectionist policies may erect barriers to digital trade or damage trust in the underlying digital economy and can result in the fracturing or socalled balkanization of the internet lessening any gains What some policymakers see as protectionist however others may view as necessary to protect domestic interests For examples of the types of digital trade barriers that are in place around the globe please see Appendix Despite common core principles such as protecting citizen’s privacy and expanding economic growth governments face multiple challenges in designing policies around digital trade The OECD points out three potentially conflicting policy goals in the internet economy 1 enabling the internet 2 boosting or preserving competition within and outside the internet and 3 protecting privacy and consumers more generally 51 Ensuring a free and open internet is a stated policy priority for the U S government 52 Like other cross-cutting policy areas such as cybersecurity or privacy no one federal entity has policy primacy on all aspects of digital trade and the United States has taken a sectoral approach to regulating digitization According to an OECD study the United States is the only OECD country that uses a decentralized market-driven approach for a digital strategy rather than having an overarching national digital strategy agenda or program 53 the Twenty-First Century Independent Task Force Report Council of Foreign Relations April 2018 50 OECD 2017 OECD Digital Economy Outlook 2017 OECD Publishing Paris http dx doi org 10 1787 9789264276284-en 51 Koske I et al 2014 “The Internet Economy—Regulatory Challenges and Practices ” OECD Economics Department Working Papers No 1171 OECD Publishing Paris DOI http dx doi org 10 1787 5jxszm7x2qmr-en 52 https www state gov internet-freedom 53 OECD 2017 OECD Digital Economy Outlook 2017 OECD Publishing Paris p 34 http dx doi org 10 1787 9789264276284-en Congressional Research Service 10 Digital Trade and U S Trade Policy Protect a Free and Open Internet54 Protecting a free and open internet is a policy priority as stated in President Trump’s 2017 National Security Strategy “The United States will advocate for open interoperable communications with minimal barriers to the global exchange of information and services The United States will promote the free flow of data and protect its interests through active engagement in key organizations such as the Internet Corporation for Assigned Names and Numbers ICANN the Internet Governance Forum IGF the UN and the International Telecommunication Union ITU ” The Department of Commerce works to promote U S digital trade policies domestically and abroad In 2015 Commerce launched a Digital Economy Agenda that identifies four pillars 55 1 “Promoting a free and open Internet worldwide because the Internet functions best for our businesses and workers when data and services can flow unimpeded across borders” 2 “Promoting trust online because security and privacy are essential if electronic commerce is to flourish” 3 “Ensuring access for workers families and companies because fast broadband networks are essential to economic success in the 21st century” and 4 “Promoting innovation through smart intellectual property rules and by advancing the next generation of exciting new technologies ” Commerce’s digital attaché program under the foreign commercial service helps U S businesses navigate regulatory issues and overcome trade barriers to e-commerce exports in key markets 56 The Administration also works to promote U S digital priorities by identifying and challenging foreign trade barriers and through trade negotiations As with traditional trade barriers digital trade constraints can be classified as tariff or nontariff barriers Tariff barriers may be imposed on imported goods used to create ICT infrastructure that make digital trade possible or on the products that allow users to connect while nontariff barriers such as discriminatory regulations or local content rules can block or limit different aspects of digital trade Often such barriers are intended to protect domestic producers and suppliers Some estimates indicate that removing foreign barriers to digital trade could increase annual U S real GDP by 0 1%-0 3% $16 7 billion$41 4 billion increase U S wages up to 1 4% and add up to 400 000 U S jobs in certain digitally intensive industries 57 54 The White House National Security Strategy of the United States of America December 2017 p 41 https www whitehouse gov wp-content uploads 2017 12 NSS-Final-12-18-2017-0905 pdf 55 Alan B Davidson “The Commerce Department’s Digital Economy Agenda ” November 9 2015 https www commerce gov news blog 2015 11 commerce-departments-digital-economy-agenda 56 For more information see https www export gov digital-attache 57 Digitally intensive industries include sectors in communications finance trade other services and manufacturing U S International Trade Commission Digital Trade in the U S and Global Economies Part 2 Publication No 4485 Investigation No 332-540 August 2014 pp 106-108 https www usitc gov publications 332 pub4485 pdf Congressional Research Service 11 Digital Trade and U S Trade Policy 2015 U S Digital Trade Negotiating Objectives Congress enhanced its digital trade policy objectives for U S trade negotiations in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 P L 114-26 or Trade Promotion Authority TPA signed into law in June 2015 58 TPA 2015 objectives related to digital trade direct the Administration to negotiate agreements that  ensure application of existing WTO commitments to the digital trade environment ensuring no less favorable treatment to physical trade  prohibit forced localization requirements and restrictions to digital trade and data flows  keep electronic transmissions duty-free and  ensure relevant legitimate regulations are as least trade restrictive as possible Tariff Barriers Historically trade policymakers focused on overt trade barriers such as tariffs on products entering countries from abroad Tariffs at the border impact goods trade by raising the prices of products for producers or end customers if tariff costs are passed down thus limiting market access for U S exporters selling products including ICT goods Quotas may limit the number or value of foreign goods persons suppliers or investments allowed in a market Since 1998 WTO countries have agreed to not impose customs duties on electronic transmissions covering both goods such as e-books and music downloads and services While the United States is a major exporter and importer of ICT goods tariffs are not levied on many of the products due to free trade agreements FTAs and the World Trade Organization WTO Information Technology Agreement see below Tariffs may still serve as trade barriers for those countries or products not covered by existing FTAs or the WTO ITA U S ICT services are often inputs to final demand products that may be exported by other countries such as China U S ICT services have shown increasing growth rates since the middle of 2014 59 58 For more information on TPA see CRS In Focus IF10038 Trade Promotion Authority TPA by Ian F Fergusson and CRS Report RL33743 Trade Promotion Authority TPA and the Role of Congress in Trade Policy by Ian F Fergusson 59 OECD 2017 OECD Digital Economy Outlook 2017 OECD Publishing Paris p 120 http dx doi org 10 1787 9789264276284-en Congressional Research Service 12 Digital Trade and U S Trade Policy ICT Goods Tariff Barriers Selected Examples Brazil Mexico and Vietnam are key participants in the ICT goods market and impose high tariffs on non-FTA partners According to the United Nations Statistics Division in 2015 Brazil reported $1 3 billion in medical ICT equipment imports such as electrocardiographs ultrasound devices and magnetic resonance imaging devices 60 despite tariffs of up to 16% on these products 61 In 2014 Vietnam reportedly imported $10 3 billion worth of electronic integrated circuits microchips and parts including approximately 4% or $398 million from the United States 62 While Vietnam imposes no tariffs on these product categories several ICT items in Vietnam’s tariff schedule have high applied rates including multiple categories of radio equipment which have an applied rate as high as 30% according to the WTO 63 Nontariff Barriers Nontariff barriers NTBs are not as easily quantifiable as tariffs Like digital trade NTBs have evolved and may pose significant hurdles to companies seeking to do business abroad NTBs often come in the form of laws or regulations that intentionally or unintentionally discriminate and or hamper the free flow of digital trade Nondiscrimination between local and foreign suppliers is a core principle encompassed in global trading rules and U S free trade agreements While WTO agreements cover physical goods services and intellectual property there is no explicit provision for nondiscrimination for digital goods As such NTBs that do not treat digital goods the same as physical ones could limit a provider’s ability to enter a market Potential Barriers to Digital Trade  High tariffs  Localization requirements  Cross border data flow limitations  IPR infringement  Discriminatory unique standards or burdensome testing  Filtering or blocking  Restrictions on electronic payment systems or the use of encryption  Cybertheft of U S trade secrets  Forced technology transfer Broader governance issues including rule of law transparency and investor protections can pose barriers and limit the ability of firms and individuals to successfully engage in digital trade Similarly market access restrictions on investment and foreign ownership or on the movement of people whether or not specific to digital trade or ICT sectors may limit a company’s ability enter a foreign market Other NTBs are more specific to digital trade Localization Requirements Localization measures are defined as measures that compel companies to conduct certain digitaltrade-related activities within a country’s borders 64 Governments often use privacy protection or national security arguments as justifications for these measures Though localization policies can be used to achieve legitimate public policy objectives some are designed to protect favor or 60 Data on Harmonized System code 9018 from U N Comtrade http comtrade un org CRS analysis of tariff data from the WTO Tariff Analysis Online TAO https tao wto org 62 U S Census Bureau 63 Harmonized System code 8527 from WTO TAO 64 U S International Trade Commission Digital Trade in the U S and Global Economies Part 1 Publication No 4415 Investigation No 332-531 July 2013 p 16 https www usitc gov publications 332 pub4415 pdf 61 Congressional Research Service 13 Digital Trade and U S Trade Policy stimulate domestic industries service providers or intellectual property at the expense of foreign counterparts and in doing so function as nontariff barriers to market access In recent free trade agreements the United States has aimed to ensure an open internet and eliminate digital trade barriers while preserving flexibility for governments to pursue legitimate policy objectives see below Cross-Border Data Flow Restrictions According to a 2017 USITC report data localization was the most cited policy measure impeding digital trade and the number of data localization measures globally has doubled in the last six years 65 One study found that over 120 countries have laws related to personal data protection often requiring data localization 66 Regulations limiting cross-border data flows and requiring local storage are a type of localization requirement that prohibit companies from exporting data outside a country Such restrictions can pose barriers to companies whose transactions rely on the internet to serve customers abroad and operate more efficiently For example data localization requirements can limit e-commerce transactions that depend on foreign financial service providers or multinational firms’ full analysis of big data from across an entire company or global value chain Regulations limiting cross-border data flows may force companies to build local server infrastructure within a country not only increasing costs and decreasing scale but also creating data silos that may be more vulnerable to cybersecurity risks According to some analysts computing costs in markets with localization measures can be 30%-60% higher than in more open markets 67 Data localization requirements pose barriers to companies’ efforts to operate more efficiently by migrating to the cloud or to SMEs attempting to enter new markets According to some estimates cloud computing accounted for 70% of related IT market growth between 2012 and 2015 and is expected to represent 60% of growth through 2020 68 Most of the largest global providers of cloud computing services are U S companies Amazon Microsoft Google and IBM Regulations or policies that limit data flows create barriers to firms and countries seeking to consume cloud services One U S business group noted increased forced localization measures citing examples in China Colombia the European Union EU Indonesia South Korea Russia and Vietnam 69 The Business Software Alliance’s 2018 Global Cloud Computing Scorecard highlighted barriers to cloud services in Indonesia Russia and Vietnam 70 For example to comply with localization requirements and continue to serve consumers of Google’s many cloud services e g Gmail search maps globally the company is opening more data centers in the United States and internationally 71 65 https www usitc gov publications 332 pub4716 pdf C M International “Benefits of the APEC Cross-Border Privacy Rules ” October 2018 https www crowell com files 20181001-Benefits-of-CBPR-System%20Guide_Oct%202018_final pdf 67 David J Lynch “The U S dominates the world of big data But Trump’s NAFTA demands could put that at risk ” Washington Post November 28 2018 68 Mark Brinda and Michael Heric “The Changing Faces of the Cloud Technology Companies Are Adapting to Sell Cloud to the Growing Number of More-Mainstream Buyers ” Bain Company 2017 69 Information Technology Industry Council Comments in Response to Executive Order Regarding Trade Agreements Violations and Abuses August 1 2017 http www itic org dotAsset 9d22f0e2-90cb-467d-81c8-ecc87e8dbd2b pdf 70 Business Software Alliance 2018 BSA Global Cloud Computing Scorecard http cloudscorecard bsa org 2018 pdf BSA_2018_Global_Cloud_Scorecard pdf 71 Google Cloud Platform Blog “Google Cloud Platform adds two new regions 10 more to come ” March 22 2016 66 Congressional Research Service 14 Digital Trade and U S Trade Policy Finding a global consensus on how to balance open data flows cybersecurity and privacy protection may be key to maintaining trust in the digital environment and advancing international trade 72 Countries are debating how to achieve the right balance and potential paths forward in plurilateral and multilateral forums and trade negotiations see “U S Bilateral and Plurilateral Agreements” Other Localization Requirements In addition to cross-border data flow restrictions localization policies include requirements to use local content whether hardware or software as a condition for manufacturing or access to government procurement contracts use local infrastructure or computing facilities or partner with a local company and transfer technology or intellectual property to that partner Localization requirements can also pose a threat to intellectual property discussed below In April 2018 the Commerce Department announced plans to develop a “comprehensive strategy to address trade-related forced localization policies practices and measures impacting the U S information and communications technology ICT hardware manufacturing industry ”73 In creating a strategic response to the increase in protectionist localization policies globally Commerce aims to preserve the competitiveness of the U S ICT sector 74 Examples of Localization Barriers Examples of localization barriers include the following  In China measures across multiple sectors e g banking require “secure and controllable” technology mandating suppliers purchase Chinese products and use Chinese suppliers see “China”  In Turkey the Law on Payments and Security Settlement Systems Payment Services and Electronic Money Institutions requires firms to maintain documents records data storage and processing facilities in Turkey  In Nigeria the government requires ICT companies to use Nigerian companies for the provision of at least 80% of all value-added services on their network without clearly defining “value-added services ”  In India the 2015 National Telecom M2M “machine to machine” roadmap recommends preferences for locally manufactured SIM cards and domestically sourced goods Source 2019 National Trade Estimate Report on Foreign Trade Barriers Office of the United States Trade Representative March 2019 Intellectual Property Rights IPR Infringement While the internet and digital technologies have opened up markets for international trade they also present ongoing and unique challenges for the protection and enforcement of intellectual property IP which are creations of the mind—such as an invention literary artistic work design symbol name or image—embodied in a physical or digital object Intellectual property rights IPR 75 are legal private enforceable time-limited rights that governments grant to https cloudplatform googleblog com 2016 03 announcing-two-new-Cloud-Platform-Regions-and-10-more-tocome_22 html mod djemCIO_h 72 For more information on data flows see CRS Report R45584 Data Flows Online Privacy and Trade Policy by Rachel F Fefer 73 Department of Commerce “U S Strategy To Address Trade-Related Forced Localization Barriers Impacting the U S ICT Hardware Manufacturing Industry ” 83 Federal Register 15786 April 12 2018 74 The planned strategy will not address cross-border data flow restrictions 75 See CRS Report RL34292 Intellectual Property Rights and International Trade by Shayerah Ilias Akhtar and Ian F Fergusson and CRS In Focus IF10033 Intellectual Property Rights IPR and International Trade by Shayerah Ilias Congressional Research Service 15 Digital Trade and U S Trade Policy inventors and artists to exclude others from using their creations without their permission Examples of IPR include patents copyrights trademarks and trade secrets Innovations in digital technologies fuel IPR infringement by enabling the rapid duplication and distribution of content that is low-cost and high-quality making it easy for instance to pirate music movies software and other copyrighted works and to share them globally The internet provides “ease of conducting commerce through unverified vendors inability for consumers to inspect goods prior to purchase and deceptive marketing ”76 Both copyright- and trademarkbased industries face challenges tackling not only infringement in physical marketplaces but increasingly also online marketplaces 77 Cyber-enabled theft of trade secrets is of growing concern Trade secrets are essential to many businesses’ operations and important assets including those in ICT services biopharmaceuticals manufacturing and environmental and other technologies IPR infringement in the digital environment is particularly difficult to quantify but considered to be significant potentially exceeding the volume of sales through traditional physical markets 78 A 2016 industry study estimated the value of digitally pirated music movies and software not actual losses to be $213 billion in 2013 and growing to as much as $384-$856 billion in 2022 79 The IP Commission estimated that the annual cost to the U S economy from counterfeit goods pirated software and theft of trade secrets continues to surpass $225 billion and could reach $600 billion 80 Efforts to address IPR infringement raise issues of balance about on one hand protecting and enforcing IPR to protect the rights of content holders and incentivize innovation in the digital environment and on the other hand setting appropriate limitations and exceptions to ensure other economically and socially valuable uses Content industries say that IP theft costs them sales detracts from legitimate services harms investors in these businesses damages their brand or reputation and hurts “law-abiding” consumers Some technology product and service companies as well as some civil society groups assert that overly stringent IPR policies may stifle information flows and legitimate digital trade and these groups support “fair use” exceptions and limitations to IPR 81 Akhtar and Ian F Fergusson 76 USTR 2015 Out-of-Cycle Review of Notorious Markets December 2015 p 9 77 USTR 2017 Out-of-Cycle Review of Notorious Markets January 2018 78 USTR 2017 Special 301 Report April 2017 79 Frontier Economics The Economic Impacts of Counterfeiting and Piracy report commissioned by Business Action to Stop Counterfeiting and Piracy BASCAP of the International Chamber of Commerce ICC and the International Trademark Association INTA June 2017 80 The estimate does not include patent infringement Commission on the Theft of American Intellectual Property “IP Commission” The Theft of American Intellectual Property Reassessments of the Challenge and U S Policy—Update to the IP Commission Report 2017 The IP Commission describes itself as an “independent and bipartisan initiative of leading Americans from the private sector public service in national security and foreign affairs academia and politics ” 81 “Fair use” is a doctrine recognized in U S law that permits limited use of copyrighted works without requiring permission from the rights holder in certain cases such as criticism comment news reporting research scholarship and teaching Congressional Research Service 16 Digital Trade and U S Trade Policy New EU Copyright Rules The EU’s new copyright directive highlights the debate over balance and has implications for U S digital trade On April 15 2019 the EU adopted the new rules to modernize its copyright laws to adapt to the digital environment One objective of the directive is to create a fairer marketplace for online content for creators and press The directive introduces an EU-wide “neighboring right” to allow news publishers to be compensated for the use of their articles by online platforms as well provide for journalists to receive an appropriate share of the revenues generated News platforms such as Google will have to negotiate licenses from newspapers and other publishers for showing content that is under two-years-old on their news feeds Short extracts from press publications— sometimes called “snippets”—are outside of the scope of the rule 82 The directive also reinforces the position of creators and right holders to negotiate and secure compensation for online use of their content hosted in the EU by major content platforms such as YouTube If no licensing agreement exists between creators and the online platforms YouTube and other such platforms must demonstrate “best efforts” to remove copyright materials if they are notified of infringing uploads Newer and smaller platforms are not subject to all of these requirements The directive addresses other digital copyright issues as well Some U S stakeholders such as the publishing industry support the new rules while others including U S businesses that are content-aggregators have raised concerns about increased costs market access barriers and effects on the innovation environment of the new rules 83 After the publication of the directive in the Official Journal of the EU member states will have 24 months to transpose the new rules into their national law Other IPR-related barriers to digital trade include government measures policies and practices that are intended to promote domestic “indigenous innovation” i e develop commercialize and purchase domestic products and technologies but that can also disadvantage foreign companies These measures can be linked to “forced” localization barriers to trade China for instance conditions market access government procurement and the receipt of certain preferences or benefits on a firm’s ability to show that certain IPR is developed in China or is owned by or licensed to a Chinese party Another example is India’s data and server localization requirements which USITC firms assert hurt market access and innovation in their sector See above National Standards and Burdensome Conformity Assessment Local or national standards that deviate significantly from recognized international standards may make it difficult for firms to enter a particular market An ICT product or software that conforms to international standards for example may not be able to connect to a local network or device based on a local or proprietary standard Also proprietary standards can limit a firm’s ability to serve a market if their company practices or assets do not conform with nor do their personnel have training in those standards As a result U S companies may not be able to reach customers or partners in those countries Similarly redundant or burdensome conformity assessment or local registration and testing requirements often add time and expense for a company trying to enter a new market and serve as a deterrent to foreign companies For example India’s Compulsory Registration Order CRO mandates that manufacturers register their products with laboratories affiliated with or certified by the Bureau of Indian Standards even if the products have already been certified by accredited international laboratories and is an often-cited concern for U S businesses facing delays getting products to market 84 If a company is required to provide the source code proprietary algorithms or other IP to gain market access it may fear theft of its IP and not enter that market see above European Commission “Question Answers EU Negotiators Reach a Breakthrough to Modernise Copyright Rules ” press release February 13 2019 83 USTR 2019 National Trade Estimate Report on Foreign Trade Barriers March 2019 84 USTR 2019 National Trade Estimate Report on Foreign Trade Barriers March 2019 p 242 82 Congressional Research Service 17 Digital Trade and U S Trade Policy Filtering Blocking and Net Neutrality In some nations 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 Governments that filter or block websites or otherwise impede access form another type of nontariff barrier For example China has asserted a desire for “digital sovereignty” and has erected what is termed by some as the “Great Firewall ” A change to China’s internet filters also blocks virtual private network or VPN access to sites beyond the Great Firewall VPNs have been used by Chinese citizens to use websites like Facebook and by companies to access data outside of China e g information from foreign subsidiaries or partners 85 While China is the most well-known it is not alone in seeking to control access to websites For example Thailand established a Computer Data Filtering Committee to use the court system to block websites that it views as violating public order and good order as well as intellectual property 86 In Russia citizens protested government censorship including the blocking of a popular messaging application along with other websites and online tools 87 Several U S and foreign policymakers have expressed concern about the influence that violent or harmful content online may have upon those who view or read it In response some countries have introduced legislation to regulate internet content for example to fight the impact and spread of violent material and false information 88 In the United States significant First Amendment freedom of speech issues are raised by the prospect of government restrictions on the publication and distribution of speech even speech that advocates terrorism 89 As a result what users can access online may vary across countries depending on national policy and preferences These differences illustrate the complexity of the internet and evolving technologies and the lack of global standards that prevails in other areas of international trade National-level net neutrality policies also differ widely Net neutrality rules govern the management of internet traffic as it passes over broadband internet access services whether those services are fixed or wireless Allowing internet access providers to limit or otherwise discriminate against content providers foreign and domestic may create a nontariff barrier 90 In the United States the Federal Communications Commission FCC classification of broadband internet service providers ISPs has been controversial domestically and may differ from how U S trading partners regulate ISPs Cybersecurity Risks The growth in digital trade has raised issues related to cybersecurity the act of protecting ICT systems and their contents from cyberattacks Cyberattacks in general are deliberate attempts by unauthorized persons to access ICT systems usually with the goal of theft disruption damage or Yu Nakamura “China’s war on VPNs creates havoc at foreign companies ” December 17 2017 USTR 2018 National Trade Estimate Report on Foreign Trade Barriers March 2018 p 446 87 Neil MacFarquhar “‘They Want to Block Our Future’ Thousands Protest Russia’s Internet Censorship ” The New York Times April 30 2018 88 Adam Satariano “Britain Proposes Broad New Powers to Regulate Internet Content ” The New York Times April 7 2019 89 For more information see CRS Report R44626 The Advocacy of Terrorism on the Internet Freedom of Speech Issues and the Material Support Statutes by Kathleen Ann Ruane 90 For more information on net neutrality see CRS Report R40616 The Net Neutrality Debate Access to Broadband Networks by Angele A Gilroy 85 86 Congressional Research Service 18 Digital Trade and U S Trade Policy other unlawful actions Cybersecurity can also be an important tool in protecting privacy and preventing unauthorized surveillance or intelligence gathering 91 Although there is overlap between data protection and privacy the two are not equivalent Cybersecurity measures are essential to protect data e g against intrusions or theft by hackers However they may not be sufficient to protect privacy Cyberattacks can pose broad risks to financial and communication systems national security privacy and digital trade and commerce According to the White House Council of Economic Advisers malicious cyberactivity i e business disruption theft of proprietary information cost the U S economy up to $109 billion in 2016 92 Cybersecurity risks run across all industry sectors that rely on digital information In the entertainment industry for example Iranian hackers stole unreleased episodes of HBO’s “Game of Thrones” series holding them for ransom and potentially costing the company and risking intellectual property and harm to the corporate reputation 93 The Federal Bureau of Investigations FBI suspects Chinese hackers were behind a cyberattack on the Marriot’s Starwood hotel chain that resulted in potentially stealing IPR and the personal information of up to 327 million hotel customers including their birthdates and passport numbers 94 An FBI official testified to the Senate Judiciary Committee that Chinese espionage efforts have become “the most severe counterintelligence threat facing our country today ”95 Cybersecurity threats can disrupt business operations or supply chains The 2017 WannaCry ransomware attack impacted public and private sector entities in over 150 countries with direct costs of at least $8 billion due to computer downtime according to one estimate 96 In the widespread attack computers in homes schools hospitals government agencies and companies were hit The United States publicly attributed the cyberattack to North Korea stating that “these disruptions put lives at risk ”97 Compromises of ITC supply chains can also pose a threat to organizations that rely on the tampered hardware as was alleged for example with some Supermicro microchips used in ITC manufacturing in China 98 Companies that rely on cloud services to store or transmit data may choose to use enhanced encryption to protect the communication and privacy both internally and of their end customers This in turn may impede law enforcement investigations if they are unable to access the encrypted data 99 However restrictions on the ability for a firm to use encryption may make a 91 For more information on cybersecurity see CRS Report R43831 Cybersecurity Issues and Challenges In Brief by Eric A Fischer and CRS In Focus IF10559 Cybersecurity An Introduction by Chris Jaikaran 92 Council of Economic Advisers The Cost of Malicious Cyber Activity to the U S Economy February 2018 https www whitehouse gov wp-content uploads 2018 02 The-Cost-of-Malicious-Cyber-Activity-to-the-U S Economy pdf 93 Nicole Hong “Iranian Charged With Hacking HBO Taking ‘Game of Thrones’ Scripts ” Wall Street Journal November 21 2017 94 David E Sanger et al “Marriott Data Breach Is Traced to Chinese Hackers as U S Readies Crackdown on Beijing ” The New York Times December 11 2018 95 U S Congress Senate Committee on the Judiciary China’s Non-Traditional Espionage Against the United States The Threat and Potential Policy Responses 115th Cong December 12 2018 96 Nick Kostov Jeannette Neumeann and Stu Woo “Cyberattack Victims Begin to Assess Financial Damage ” Wall Street Journal May 14 2017 97 Thomas P Bossert Assistant to the President for Homeland Security and Counterterrorism “It’s Official North Korea Is Behind WannaCry ” Wall Street Journal December 18 2017 98 Jordan Robertson and Michael Riley “The Big Hack How China Used a Tiny Chip to Infiltrate U S Companies ” Bloomberg October 4 2018 99 For more information on encryption see CRS Report R44187 Encryption and Evolving Technology Implications for U S Law Enforcement Investigations by Kristin Finklea and CRS Report R44407 Encryption Selected Legal Congressional Research Service 19 Digital Trade and U S Trade Policy company vulnerable to cyberattacks or cybertheft demonstrating the need for policies and regulations to balance competing objectives U S Digital Trade with Key Trading Partners The European Union EU and China are large U S digital trade partners and each has presented various challenges for U S companies consumers and policymakers European Union Differences in U S and EU policies have ramifications on digital flows and international trade The two partners’ varying approaches to digital trade privacy and national security have at times threatened to disrupt U S -EU data flows The transatlantic economy is the largest in the world and cross-border data flows between the United States and EU are the highest in the world In between 2003 and 2017 total U S -EU trade in goods and services exports plus imports nearly doubled from $594 billion to $1 2 trillion 100 ICT and potentially ICT-enabled services accounted for approximately $190 billion of U S exports to the EU in 2017 101 The two sides also account for a significant portion of each other’s e-commerce trade see Figure 4 Figure 4 Select U S -EU Cross-Border E-Commerce Purchases Source Kati Souminen “Where the Money Is The Transatlantic Digital Market ” CSIS October 12 2017 Issues by Richard M Thompson II and Chris Jaikaran 100 See CRS In Focus IF10930 U S -EU Trade and Investment Ties Magnitude and Scope by Shayerah Ilias Akhtar 101 https apps bea gov iTable iTable cfm ReqID 62 step 1 Congressional Research Service 20 Digital Trade and U S Trade Policy Notes 48% of German and 70% of UK shoppers purchase from U S e-commerce sites 49% of U S ecommerce purchases are from UK sites The United States and EU account for almost half of each other’s digitally deliverable service exports e g business professional and technical services and many of these services are incorporated into exported goods as part of GVCs see Figure 5 and Figure 6 102 The UK alone accounted for 23% of U S digitally deliverable services exports 103 Almost 40% of the data flows between the United States and EU are through business and research networks 104 Figure 5 Digitally Deliverable Service Exports 2017 Source “Where the Money Is The Transatlantic Digital Market ” CSIS October 12 2017 Figure 6 Digitally Deliverable Services Incorporated into Global Value Chains Source “Where the Money Is The Transatlantic Digital Market ” CSIS October 12 2017 Despite close economic ties differences between the United States and EU in their approaches to data flows and digital trade have caused friction in U S -EU economic and security relations To address some of these differences in 2013 the United States and the EU began but did not Where the Money Is The Transatlantic Digital Market ” CSIS October 12 2017 Ibid 104 All figures on U S -EU trade and data flows includes the United Kingdom UK as part of the EU Without the UK the statistics would be lower 102 103 Congressional Research Service 21 Digital Trade and U S Trade Policy conclude negotiating a broad FTA Negotiations included a number of digital trade issues such as market access for digital products IPR protection and enforcement cybersecurity and regulatory cooperation among other things 105 On October 16 2018 the Trump Administration notified Congress under Trade Promotion Authority TPA of its intent to enter into negotiations with the EU The Administration’s specific negotiating objectives envision a wide-ranging agreement including addressing digital trade along with trade in goods services agriculture government procurement and other rules such as on IPR and investment 106 However no agreement exists on the scope of the negotiations The EU negotiating mandates in contrast are narrower they authorize EU negotiations with the United States to address industrial tariffs excluding agricultural products and nontariff regulatory barriers to make it easier for companies to prove that their products meet U S and EU technical requirements 107 The Administration also notified Congress under TPA of its intent to negotiate a trade agreement with the UK post-Brexit and the corresponding specific negotiating objectives likewise envision a broad agreement addressing digital trade issues The UK cannot formally negotiate or conclude a new agreement until it exits the EU which has exclusive competence over trade policy and negotiates trade deals on behalf of all EU member states Details about the future UK-EU trade relationship remain largely unknown and it is uncertain when and to what extent the UK will regain control of its national trade policy—a major objective for Brexit supporters These factors directly shape prospects for a proposed bilateral U S -UK free trade agreement 108 EU-U S Privacy Shield The United States and EU have different legal approaches to information privacy that extends into the digital world After extensive negotiations the EU-U S Privacy Shield entered into force on July 12 2016 creating a framework to provide U S and EU companies a mechanism to comply with data protection requirements when transferring personal data between the EU and the United States 109 Under the Privacy Shield program U S companies can voluntarily selfcertify compliance with requirements such as robust data processing obligations The agreement includes obligations on the U S government to proactively monitor and enforce compliance by U S firms establish an ombudsman in the U S State Department and set specific safeguards and limitations on surveillance The United States and Switzerland also agreed to the Swiss-U S Privacy Shield which will be “comparable” to the EU-U S agreement 110 The Privacy Shield also involves an annual joint review by the United States and the EU the second of which was completed in October 2018 111 Under the review the commission found that Under the Obama Administration a U S goal for T-TIP had been to develop “appropriate provisions to facilitate the use of electronic commerce to support goods and services trade including through commitments not to impose customs duties on digital products or unjustifiably discriminate among products delivered electronically ” USTR “U S Objectives U S Benefits in the Transatlantic Trade and Investment Partnership A Detailed View ” fact sheet March 2014 106 Office of the U S Trade Representative United States-European Union Negotiations Summary of Specific Negotiating Objectives January 2019 For more information see CRS In Focus IF10931 U S -EU Trade and Economic Issues by Shayerah Ilias Akhtar 107 Council of the EU “Trade with the United States Council authorises negotiations on elimination of tariffs for industrial goods and on conformity assessment ” press release April 15 2019 108 CRS In Focus IF11123 Brexit and Outlook for U S -UK Trade Agreement by Shayerah Ilias Akhtar 109 For more information on the Privacy Shield see https www privacyshield gov Program-Overview 110 Lauren Cerulus “Switzerland and U S strike ‘privacy shield’ data transfer deal ” Politico Pro January 11 2017 111 European Commission “Report from the Commission to the European Parliament and the Council ” COM 2018 860 final December 19 2018 105 Congressional Research Service 22 Digital Trade and U S Trade Policy the Privacy Shield is working and that the United States had made improvements and changes since the first review The Commission however also noted areas of concern and specific recommendations General Data Protection Regulation GDPR The EU’s General Data Protection Regulation GDPR effective May 2018 established rules for EU member states to safeguard individuals’ personal data The GDPR is a comprehensive privacy regime that builds on previous EU data protection rules It grants new rights to individuals to control personal data and creates specific new data protection requirements The GDPR applies to 1 all businesses and organizations with an EU establishment that process perform operations on personal data of individuals or “data subjects” in the EU regardless of where the actual processing of the data takes place and 2 entities outside the EU that offer goods or services for payment or for free to individuals in the EU or monitor the behavior of individuals in the EU These measures have raised concerns about the GDPR’s extraterritorial implications While the GDPR is directly applicable at the EU member state level individual countries are responsible for establishing some national-level rules and policies as well as enforcement authorities and some are still in the process of doing so As a result some U S stakeholders have voiced concern about a lack of clarity and inadequate country compliance guidelines as well as about the potential high cost of data storage and processing needed for compliance Despite the lack of precise guidance many companies have taken steps to implement its requirements For example Amazon touts its compliance with GDPR requirements and aims to assist its Amazon Web Services AWS corporate customers many of whom are small and medium businesses with their own compliance 112 It can be more challenging for SMEs to fully understand GDPR and comply with its notification and other requirements such as an individual’s “right to be forgotten” and on data portability there are indications that some U S businesses have chosen to exit the EU market 113 Some experts contend that the GDPR may effectively set new global data privacy standards since many companies and organizations are striving for GDPR compliance to avoid being shut out of the EU market fined or otherwise penalized In addition some countries outside of Europe are imitating all or parts of the GDPR in their own privacy regulatory and legislative efforts European Data Protection Authorities may have reinforced U S companies’ concerns by initiating several enforcement actions in the fall of 2018 including a €50 million approximately $57 million fine on Google 114 Digital Single Market DSM Like the GDPR EU policymakers are attempting to bring more harmonization across the region through the Digital Single Market DSM The DSM is an ongoing effort to unify the EU market facilitate trade and drive economic growth The DSM’s three pillars revolve around better online access to cross-border digital goods and services a regulatory environment supporting investment and fair competition and driving growth through investment in infrastructure human capital 112 See https aws amazon com compliance gdpr-center “Websites not available in the European Union after GDPR ” VerifiedJoseph com July 11 2018 updated November 16 2018 https data verifiedjoseph com dataset websites-notavailable-eu-gdpr 114 For more information on GDPR see CRS In Focus IF10896 EU Data Protection Rules and U S Implications by Rachel F Fefer and Kristin Archick 113 Congressional Research Service 23 Digital Trade and U S Trade Policy research and innovation Among its initiatives is a mandate to allow cross-border flows for nonpersonal data within the EU with limited exceptions but not necessarily externally China China presents a number of significant opportunities and challenges for the United States in digital trade The modernization of the Chinese economy coupled with a large and increasingly prosperous population has led to a surge in the number of Chinese Internet users and made China a major source of global ecommerce China’s internet users grew from 21 5 million in 2000 to 829 million as of March 2019 and this trend will likely continue given China’s relatively low internet penetration rate see Figure 7 115 China’s online retail sales in 2018 totaled $1 1 trillion more than double the U S level at $505 billion and were the world’s largest 116 E-Marketer predicts that China’s e-commerce retail sales will reach $1 99 trillion in 2019 accounting for 35 3% of total sales and 55 8% of global online sales 117 Figure 7 The U S and China Digital Trade Markets Source U N population statistics Statista com Internetworldstats com 115 Internet World Statistics at https www internetworldstats com top20 htm Statista com 117 E-Marketer Newsroom 2019 China to Surpass US in Total Retail Sales January 23 2019 available at https www emarketer com newsroom index php 2019-china-to-surpass-us-in-total-retail-sales 116 Congressional Research Service 24 Digital Trade and U S Trade Policy U S firms may benefit from expanding digital trade in China but they may also face numerous challenges in the Chinese market The USTR’s 2019 report on foreign trade barriers included a digital trade fact sheet that cited countries and practices of “key concern ”118 Three Chinese digital policies were listed including its restrictions on cross-border data flows and data localization requirements extensive web filtering and blocking of legitimate sites including blocks 10 of the top 30 global sites and up to 10 000 sites in total affecting billions of dollars in potential U S business and cloud computing restrictions and requirements to partner with a Chinese firm to enter the market and to transfer technology and IP to the partner 119 The American Chamber of Commerce in China AmCham China 2019 business survey found that 73% of respondents who were engaged in technology and R D-intensive industries stated that they faced significant or somewhat significant market barriers in China The lack of sufficient IPR protection cited by 35% of respondents and restrictive cybersecurity-related policies cited by 27% of respondents ranked among the top three factors prohibiting firms from increasing innovation activities in China The survey reflected significant concerns by member firms over eight Chinese ICT policies and restrictions such as internet restrictions and censorship IPR theft and data localization requirements with 72% to 88% of respondents stating that such measures impacted their competiveness and operations in China either somewhat or severely see Table 1 Table 1 AmCham China Business Survey Percent of Respondents who said Certain Chinese IT Policies Affected their Operations and Competitiveness in China Somewhat or Severely IT-related issues and practices % of respondents Slow cross border internet speed 88 Restricted access to online tools such as software 86 Cross-border internet access by virtual private networks VPN 83 Data security IP leakage 79 Cybersecurity rules protecting critical information infrastructure important data 75 Data privacy regulations 75 Internet censorship and restrictions on information publishing sharing 73 Data localization requirements 72 Source 2019 AmCham China Business Survey A Digital Trade Restrictiveness Index DTRI of 65 economies created by the European Centre for International Political Economy found China to have the most restrictive digital policies followed by Russia India Indonesia and Vietnam 120 The index report noted 118 USTR Fact Sheet on 2019 National Trade Estimate Key Barriers to Digital Trade March 2019 available at https ustr gov about-us policy-offices press-office fact-sheets 2019 march fact-sheet-2019-national-trade-estimate 119 Examples of blocked sites include Google services e g Gmail and YouTube Twitter Instagram Facebook the Washington Post the New York Times and the Wall Street Journal 120 The index was developed based on four factors fiscal restrictions and market access establishment restrictions data restrictions and trading restrictions See http globalgovernanceprogramme eui eu wp-content uploads 2018 09 DTRI-final pdf Congressional Research Service 25 Digital Trade and U S Trade Policy China applies the most restrictive digital trade measures in many areas including public procurement foreign investment Intellectual Property Rights IPRs competition policy intermediary liability content access and standards The restrictions do not only impose higher costs for trading digital goods and services they can also block digital trade altogether in certain sectors In addition China’s data policies are extremely burdensome for companies and the country also applies some quantitative trade restrictions and restrictions on e-commerce 121 Internet Governance and the Concept of “Internet Sovereignty” The Chinese government has sought to advance its views on how the internet should be expanded to promote trade but also to set guidelines and standards over the rights of governments to regulate and control the internet a concept it has termed “Internet Sovereignty ”122 The Chinese government appears to have first advanced a policy of “Internet Sovereignty” around June 2010 when it issued a White Paper titled “the Internet of China ” which stated the following Within Chinese territory the Internet is under the jurisdiction of Chinese sovereignty The Internet sovereignty of China should be respected and protected Citizens of the People’s Republic of China and foreign citizens legal persons and other organizations within Chinese territory have the right and freedom to use the Internet at the same time they must obey the laws and regulations of China and conscientiously protect Internet security 123 In 2014 the Chinese government established the Central Internet Security and “Informatization” Leading Group headed by Chinese president Xi Jinping to “strengthen China’s Internet security and build a strong cyberpower ” A year later President Xi addressed an internet conference stating “we should respect the right of individual countries to independently choose their own path of cyber development model of cyber regulation and Internet public policies and participate in international cyberspace governance on an equal footing ”124 Some analysts contend that China’s internet sovereignty initiative represents an assertion that the government has the right to fully control the internet within China Some see this as an attempt by the government to control information that is deemed a threat to social stability in violation of the right to freedom of speech which is guaranteed in China’s Constitution Other critics of China’s internet sovereignty policy view it as an attempt by the government to limit market access by foreign internet digital and high technology firms in China in order to boost Chinese firms and reduce China’s dependence on foreign technology Cyber-Theft of U S Trade Secrets China is considered by most analysts to be the largest source of global theft of IP and a major source of cybertheft of U S trade secrets including by government entities To illustrate a 2011 report by the U S Office of the Director of National Intelligence DNI stated “Chinese actors are the world’s most active and persistent perpetrators of economic espionage U S private sector firms and cybersecurity specialists have reported an onslaught of computer network intrusions 121 The top five most open economies were New Zealand Iceland Norway Ireland and Hong Kong Originally China appeared to be mainly focused on establishing the rules of the road for the Internet in China but over the past few years it appears to be advancing its vision of Internet sovereignty globally 123 The People’s Daily Full Text The Internet in China June 8 2010 available at http en people cn 90001 90776 90785 7017202 html 124 Ministry of Foreign Affairs of the People’s Republic of China Remarks by H E Xi Jinping President of the People’s Republic of China At the Opening Ceremony of the Second World Internet Conference December 16 2015 available at http www fmprc gov cn mfa_eng wjdt_665385 zyjh_665391 t1327570 shtml 122 Congressional Research Service 26 Digital Trade and U S Trade Policy that have originated in China but the IC Intelligence Community cannot confirm who was responsible ” The report goes on to warn that China will continue to be driven by its longstanding policy of “catching up fast and surpassing” Western powers The growing interrelationships between Chinese and U S companies—such as the employment of Chinese-national technical experts at U S facilities and the off-shoring of U S production and R D to facilities in China—will offer Chinese government agencies and businesses increasing opportunities to collect sensitive US economic information 125 In May 2014 the U S Department of Justice issued a 31-count indictment against five members of the People’s Liberation Army for cyber-espionage and other offenses that allegedly targeted five U S firms and a labor union for commercial advantage the first time the Federal government had initiated such action against state actors 126 In April 2015 President Obama issued Executive Order 13964 authorizing certain sanctions against “persons engaging in significant malicious cyber-enabled activates ”127 This led to China sending a high-level delegation to Washington DC and on September 25 2015 Presidents Obama and Xi announced that they had reached an agreement on cyber-security and trade secrets that stated that neither country’s government “will conduct or knowingly support cyber-enabled theft of IP including trade secrets or other confidential business information with the intent of providing competitive advantages to companies or commercial sectors ”128 Specifically the two sides agreed to  Not conduct or knowingly support cyber-enabled theft of IP including trade secrets or other confidential business information with the intent of providing competitive advantages to companies or commercial sectors  Establish a high-level joint dialogue mechanism on fighting cybercrime and related issues  Work together to identify and promote appropriate norms of state behavior in cyberspace internationally and  Provide timely responses to requests for information and assistance concerning malicious cyber activities 129 The two sides also agreed to set up a high-level dialogue mechanism which would take place twice a year to address cybercrime and improve two-way communication when cyber-related concerns arise including the creation of a hotline The first meeting of the U S -China HighLevel Joint Dialogue on Cybercrime and Related Issues was held in December 2015 China and 125 DNI Office of the National Counterintelligence Executive Foreign Spies Stealing U S Economic Secrets in Cyberspace Report to Congress on Foreign Economic Collection and Industrial Espionage 2009-2011 October 2011 126 U S Department of Justice at http www justice gov iso opa resources 5122014519132358461949 pdf 127 A copy can be found at http www treasury gov resource-center sanctions Programs Documents cyber_eo pdf The EO was extended for an additional year by President Obama on March 29 2016 128The November 2015 meeting of the G-20 countries which includes China included this language in its communique “In the ICT environment just as elsewhere states have a special responsibility to promote security stability and economic ties with other nations In support of that objective we affirm that no country should conduct or support ICT-enabled theft of intellectual property including trade secrets or other confidential business information with the intent of providing competitive advantages to companies or commercial sectors ” 129 The White House Fact Sheet President Xi Jinping’s State Visit to the United States September 25 2015 available at https obamawhitehouse archives gov the-press-office 2015 09 25 fact-sheet-president-xi-jinpings-state-visit-unitedstates Congressional Research Service 27 Digital Trade and U S Trade Policy the United States reached agreement on a document establishing guidelines for requesting assistance on cybercrime or other malicious cyber activities and for responding to such requests Two more meetings were held in 2016 The dialogue was continued in October 2017 under the Trump Administration 130 The Administration’s Section 301 trade dispute between the United States and China may have led to a suspension of the dialogue see below 131 It is difficult to assess the effectiveness of the September 2015 U S -China cyber agreement in reducing the level of Chinese cyber intrusions against U S entities seeking to steal trade secrets as no official U S statistics on such activities are publicly available In August 2018 the U S Deputy Director of the Cyber Threat Intelligence Integration Center stated that “the intelligence community and private-sector security experts continue to identify ongoing cyber activity from China although at volumes significantly lower than before the bilateral U S -China cyber commitments of September 2015 ”132 In October 2018 CrowdStrike a U S cybersecurity technology company identified China as “the most prolific nation-state threat actor during the first half of 2018 ”133 It found that Chinese entities had made targeted intrusion attempts against multiple sectors of the economy In December 2018 U S Assistant Attorney General John C Demers stated at a Senate hearing that from 2011-2018 China was linked to more than 90% of the Justice Department’s cases involving economic espionage and two-thirds of its trade secrets cases 134 Cybersecurity Laws According to the USTR’s 2017 report on China’s WTO accession China has not fulfilled all of its WTO market opening commitments The USTR cited “significant declines in commercial sales of foreign ICT products and services in China ” as evidence that China continued to maintain “mercantilist policies under the guise of cybersecurity ”135 The Chinese government pledged not to use recently enacted cyber and national security laws and regulations to unfairly burden foreign ICT firms or to discriminate against foreign ICT firms in the implementation of various policy initiatives to promote indigenous innovation in China Some Chinese laws or proposals include language stating that critical information infrastructure should be “secure and controllable ” an ambiguous term that has not been precisely defined by Chinese authorities Other proposals of concern to U S firms appear to lay out policies that would require foreign ICT firms to hand over proprietary information 130 See U S Department of Justice Press Release October 6 2017 at https www justice gov opa pr first-us-chinalaw-enforcement-and-cybersecurity-dialogue 131 The Diplomat Another US-China Dialogue Bites the Dust October 2 2018 at https thediplomat com 2018 10 another-us-china-dialogue-bites-the-dust 132 Office of the Director of National Intelligence Statement for the Record Mr Michael Moss Deputy Director Cyber Threat Intelligence Integration Center on “Cyber Threats to Our Nation’s Critical Infrastructure ” August 21 2018 available at https www dni gov index php ctiic-newsroom item 1899-statement-for-the-record-mr-michael-moss-forconfirmation-before-the-senate-select-committee-on-crime-and-terrorism-to-be-deputy-director-of-the-cyber-threatintelligence-integration-center 133 CrowdStrike CrowdStrike Report Reveals Cyber Intrusion Trends from Elite Team of Threat Hunters October 9 2019 at https www crowdstrike com resources news crowdstrike-report-reveals-cyber-intrusion-trends-from-eliteteam-of-threat-hunters 134 U S Department of Justice Statement of John C Demers Assistant Attorney General National Security Division U S Department of Justice Before the Committee on the Judiciary United States Senate December 12 2018 at https www judiciary senate gov imo media doc 12-12-18%20Demers%20Testimony pdf 135 USTR 2017 Report to Congress on China’s WTO Compliance January 2018 p 3 Congressional Research Service 28 Digital Trade and U S Trade Policy Examples of measures of concern to foreign ICT firms include Cybersecurity Law passed by the government on November 7 2016 effective June 1 2017 ascertains the principles of cyberspace sovereignty 136 defines the security-related obligations of network product and service providers further enhances the rules for protection of personal information establishes a framework of security protection for “critical information infrastructure” and establishes regulations pertaining to cross-border transmissions of important data by critical information infrastructure 137  Some analysts have expressed concerns that one of the main goals of the new law is to promote the development of indigenous technologies and impose restrictions on foreign firms and many multinational companies continue to voice concerns about the lack of clarity of the law’s requirements how the law will be interpreted and implemented through subsequent regulations and to what extent it will impact their operations in China National Security Law enacted in July 2015 emphasizes the state’s role in driving innovation and reviewing “foreign commercial investment special items and technologies internet information technology products and services projects involving national security matters as well as other major matters and activities that impact or might impact national security ”138 Such restrictions could have a significant impact on U S ICT firms According to BEA U S exports of ICT services and potentially ICT-enabled services i e services that are delivered remotely over ICT networks to China totaled $18 7 billion in 2017 139 Section 301 Action against China over Intellectual Property and Innovation Issues Concerns over China’s policies on IP technology and innovation policies led the Trump Administration in August 2017 to launch a Section 301 investigation of those policies 140 On March 22 2018 President Trump signed a Memorandum on Actions by the United States Related to the Section 301 Investigation that identified four broad IPR-related policies that justified U S action under Section 301 stating that China Article 1 states “This law is formulated so as to ensure network security to safeguard cyberspace sovereignty national security and the societal public interest to protect the lawful rights and interests of citizens legal persons and other organizations and to promote the healthy development of economic and social informatization ” 137 Deloitte “A new era for Cybersecurity in China ” November 2017 available at https www2 deloitte com cn en pages risk articles new-era-cybersecurity-law html 138 Article 59 translation from the Council on Foreign Relations National Security Law of the People’s Republic of China July 1 2015 http www cfr org homeland-security national-security-law-peoples-republic-china p36775 139 See BEA International Trade Data U S Trade in Services https apps bea gov iTable iTable cfm ReqID 62 step 1#reqid 62 step 1 isuri 1 6210 4 140 Sections 301 through 310 of the Trade Act of 1974 as amended commonly referred to as “Section 301 ” procedures apply to foreign acts policies and practices that the USTR determines either 1 violates or is inconsistent with a trade agreement or 2 is unjustifiable and burdens or restricts U S commerce and sets procedures and timetables for actions based on the type of trade barrier s addressed 136 Congressional Research Service 29 Digital Trade and U S Trade Policy 1 Uses joint venture requirements foreign investment restrictions and administrative review and licensing processes to force or pressure technology transfers from American companies 2 Uses discriminatory licensing processes to transfer technologies from U S companies to Chinese companies 3 Directs and facilitates investments and acquisitions which generate large-scale technology transfer and 4 Conducts and supports cyberintrusions into U S computer networks to gain access to valuable business information The USTR estimates such policies cost the U S economy at least $50 billion annually Under the Section 301 action the Administration proposed to 1 implement 25% ad valorem tariffs on certain Chinese imports which in sum are comparable to U S trade losses 2 initiate a WTO dispute settlement case against China’s “discriminatory” technology licensing which it did on March 23 2018 and 3 propose new investment restrictions on Chinese efforts to acquire sensitive U S technology 141 The Administration did not act on the last issue after Congress passed the Foreign Investment Risk Review Modernization Act of 2018 FIRRMA P L 115232 in August 2018 to modernize the existing U S review process of foreign investments in terms of national security Among its changes FIRRMA expanded the types of investment subject to review including certain noncontrolling investments in “critical technology ”142 The Trump Administration subsequently imposed tariff hikes on $250 billion worth of imports from China in three separate stages in 2018 while China increased tariffs on $110 billion worth of imports from the United States See Figure 8 143 In May 2019 the United States increased the tariff levels on the third tranche of products imported from China China subsequently increased its tariff levels on its third tranche 141 For more information on the Section 301 investigation see CRS In Focus IF10708 Enforcing U S Trade Laws Section 301 and China by Wayne M Morrison 142 For more information on FIRMMA see CRS In Focus IF10952 CFIUS Reform Foreign Investment National Security Reviews by James K Jackson and Cathleen D Cimino-Isaacs 143 These import hikes were as follows 25% on $34 billion July 6 25% on $16 billion August 23 and 10% on $200 billion September 24 China’s first two stages of retaliation matched U S levels in import and tariff levels while its third stage tariff hikes ranged from 5% to 10% on $60 billion worth of imports Congressional Research Service 30 Digital Trade and U S Trade Policy Figure 8 Three Rounds of U S -China Tariff Hikes in 2018 Estimated Value of Goods Impacted $billions and effective dates Source USTR and Chinese Ministry of Commerce Notes Tariff rates vary Digital Trade Provisions in Trade Agreements As the above analysis of EU and China policies demonstrates there is not a single set of international rules or disciplines that govern key digital trade issues and the topic is treated inconsistently if at all in trade agreements As digital trade has emerged as an important component of trade flows it has risen in significance on the U S trade policy agenda and that of other countries Given the stalemate in comprehensive WTO multilateral negotiations trade agreements have not kept pace with the complexities of the digital economy and digital trade is treated unevenly in existing WTO agreements More recent bilateral and plurilateral deals have started to address digital trade policies and barriers more comprehensively The use of digital trade provisions in bilateral and plurilateral trade negotiations may help spur interest in the creation of future WTO frameworks that focus on digital trade and provide input for ongoing plurilateral negotiations occurring in the aegis of the WTO see below WTO Provisions While no comprehensive agreement on digital trade exists in the WTO other WTO agreements cover some aspects of digital trade and new plurilateral negotiations may set new rules and disciplines Congressional Research Service 31 Digital Trade and U S Trade Policy General Agreement on Trade in Services GATS The WTO General Agreement on Trade in Services GATS entered into force in January 1995 predating the current reach of the internet and the explosive growth of global data flows GATS includes obligations on nondiscrimination and transparency that cover all service sectors The market access obligations under GATS however are on a “positive list” basis in which each party must specifically opt in for a given service sector to be covered 144 As GATS does not distinguish between means of delivery trade in services via electronic means is covered under GATS While GATS contains explicit commitments for telecommunications and financial services that underlie e-commerce digital trade and information flows and other trade barriers are not specifically included Given the positive list approach of GATS coverage across members varies and many newer digital products and services did not exist when the agreements were negotiated To address advances in technology and services the Committee on Specific Commitments is examining how certain new online services such as platform services or specific regulations such as data localization could be classified and scheduled within GATS 145 Declaration on Global Electronic Commerce In May 1998 WTO members established the “comprehensive” Work Programme on Electronic Commerce and established a temporary customs duties moratorium on electronic transmission that has been extended multiple times 146 While multiple members submitted proposals to advance multilateral digital trade negotiations under the Work Programme no clear path forward was identified Information Technology Agreement ITA The WTO Information Technology Agreement ITA aims to eliminate tariffs on the goods that power and utilize the internet lowering the costs for companies to access technology at all points along the value chain Originally concluded in 1996 the ITA was expanded to further cut tariffs beginning in July 2016 The expanded ITA is a plurilateral agreement among 54 developed and developing WTO members who account for over 90% of global trade in these goods Some WTO members such as Vietnam and India are party to the original ITA but did not join the expanded agreement Like the original ITA the benefits of the expanded agreement will be extended on a most-favored nation MFN basis to all WTO members Under the expanded ITA the parties agreed to review the agreement’s scope in the future to determine if additional product coverage is warranted as technology evolves While the WTO ITA has expanded trade in the technology products that underlie digital trade it does not tackle the nontariff barriers that can pose significant limitations Agreement on Trade-Related Aspects of Intellectual Property Rights TRIPS The TRIPS Agreement in effect since January 1 1995 provides minimum standards of IPR protection and enforcement The TRIPS Agreement does not specifically cover IPR protection and enforcement in the digital environment but arguably has application to the digital 144 For more information see https www wto org english tratop_e serv_e serv_e htm and CRS Report R43291 U S Trade in Services Trends and Policy Issues by Rachel F Fefer 145 World Trade Organization “WTO members hold latest “cluster” of services meetings ” March 21 2019 146 For more information see https www wto org english tratop_e ecom_e ecom_briefnote_e htm Congressional Research Service 32 Digital Trade and U S Trade Policy environment and sets a foundation for IPR provisions in subsequent U S trade negotiations and agreements many of which are “TRIPS-plus ” The TRIPS Agreement covers copyrights and related rights i e for performers producers of sound recordings and broadcasting organizations trademarks patents trade secrets as part of the category of “undisclosed information” and other forms of IP It builds on international IPR treaties dating to the 1800s administered by the World Intellectual Property Organization or WIPO see below TRIPS incorporates the main substantive provisions of WIPO conventions by reference making them obligations under TRIPS WTO members were required to fully implement TRIPS by 1996 with exceptions for developing country members by 2000 and leastdeveloped-country LDC members until July 1 2021 for full implementation 147 TRIPS aims to balance rights and obligations between protecting private rights holders’ interests and securing broader public benefits Among its provisions the TRIPS section on copyright and related rights includes specific provisions on computer programs and compilations of data It requires protections for computer programs—whether in source or object code—as literary works under the WIPO Berne Convention for the Protection of Literary and Artistic Works Berne Convention TRIPS also clarifies that databases and other compilations of data or other material whether in machine readable form or not are eligible for copyright protection even when the databases include data not under copyright protection 148 Like the GATS TRIPS predates the era of ubiquitous internet access and commercially significant e-commerce TRIPS includes a provision for WTO members to “undertake reviews in the light of any relevant new developments which might warrant modification or amendment” of the agreement The TRIPS Council has engaged in discussions on the agreement’s relationship to electronic commerce as part of the WTO Work Programme on Electronic Commerce focusing on protection and enforcement of copyright and related rights trademarks and new technologies and access to these technologies new activity by the TRIPS Council to this end appears to be limited in recent years 149 World Intellectual Property Organization WIPO Internet Treaties The World Intellectual Property Organization WIPO has been a primary forum to address IP issues brought on by the digital environment since the TRIPS Agreement The WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty—often referred to jointly as the WIPO “Internet Treaties”—established international norms regarding IPR protection in the digital environment These treaties were agreed to in 1996 and entered into force in 2002 but are not enforceable including under WTO dispute settlement Shaped by TRIPS the WIPO Internet Treaties are intended to clarify that existing rights continue to apply in the digital environment to create new online rights and to maintain a fair balance between the owners of rights and the general public 150 147 For pharmaceutical products the implementation period has been extended until January 1 2033 WTO “Overview The TRIPS Agreement ” https www wto org english tratop_e trips_e intel2_e htm For more information see CRS Report RL34292 Intellectual Property Rights and International Trade by Shayerah Ilias Akhtar and Ian F Fergusson 149 WTO General Council “Item 6—Work Programme on Electronic Commerce—Review of Progress ” WT GC W 701 July 24 2015 and WTO General Council “Item 4—Work Programme on Electronic Commerce— Review of Progress ” WT GC W 756 December 17 2018 150 BSA Powering the Digital Economy A Trade Agenda to Drive Growth and BSA Shadow Market 2011 BSA Global Software Piracy Study May 2012 148 Congressional Research Service 33 Digital Trade and U S Trade Policy Key features of the WIPO Internet Treaties include provisions for legal protection and remedies against circumventing TPMs such as encryption and against the removal or alteration of rights management information RMI which is data identifying works or their authors necessary for them to manage their rights e g for licenses and royalties The liability of online service providers and other communication entities that provide access to the internet was contested in the negotiations on the WIPO Internet Treaties In the end WIPO Internet Treaties leave it to the discretion of national governments to develop the legal parameters for ISP liability 151 As of March 2019 the WIPO Internet Treaties had 96 contracting parties The United States implemented the WIPO Internet Treaties through the Digital Millennium Copyright Act of 1998 DMCA H R 2281 which set new standards for protecting copyrights in the digital environment including prohibiting the circumvention of antipiracy measures incorporated into copyrighted works and enforcing such violations through civil administrative and criminal remedies 152 The DMCA also among other things limits remedies available against ISPs that unknowingly transmit copyright infringing information over their networks by creating certain “safe harbors ”153 India was one of the latest countries to join the treaties entering them into force on December 25 2018 The United States continues to call on trading partners such as Turkey and Mexico to fully implement the WIPO Internet Treaties 154 WTO Plurilateral Effort On the sidelines of the WTO Ministerial Conference in December 2017 the United States as part of a group of over 70 WTO members agreed to “initiate exploratory work together toward future WTO negotiations on trade related aspects of electronic commerce ”155 The U S objectives include market access data flows nondiscriminatory treatment of digital products protection of intellectual property and digital security measures and intermediary liability among others 156 The group formally launched the e-commerce initiative in January 2019 157 The official joint statement lists includes advanced economies such as the United States the EU and Australia and also several developing countries such as China and Brazil India stated it will not join preferring to maintain its flexibility to favor domestic firms limit foreign market access and raise revenue in the future through potential customs duties 158 After the meeting the U S Trade Representative’s USTR statement emphasized the need for a high-standard agreement that includes enforceable obligations 159 The EU noted e-signatures 151 U S Congress Senate Committee on Foreign Relations WIPO Copyright Treaty WCT 1996 and WIPO Performances and Phonograms Treaty 1996 Report to accompany treaty document 105-17 105th Cong 2nd sess October 14 1998 S Exec Rept 105-25 152 See P L 105-304 153 For more information on this statute see CRS Report R43436 Safe Harbor for Online Service Providers Under Section 512 c of the Digital Millennium Copyright Act by Brian T Yeh 154 USTR 2017 Special 301 Report April 2017 155 WTO “Joint Statement on Electronic Commerce ” December 13 2017 https ustr gov sites default files files Press Releases Joint%20Statement%20on%20Electronic%20Commerce pdf 156 The United States “Joint Statement on Electronic Commerce Initiative ” WTO April 12 2018 157 WTO Joint Statement on Electronic Commerce WT L 1056 January 25 2019 158 Subhayan Chakraborty “India refuses to join e-commerce talks at WTO says rules to hurt country ” The Business Standard February 25 2019 159 USTR “USTR Robert Lighthizer on the Joint Statement on Electronic Commerce ” January 25 2019 https ustr gov about-us policy-offices press-office press-releases 2019 january ustr-robert-lighthizer-joint Congressional Research Service 34 Digital Trade and U S Trade Policy customs duties forced disclosure of source code and data localization measures among the potential new rules to be discussed 160 Some analysts raise concerns that the EU may seek more limited commitments on issues such as cross-border data flows China has proposed the negotiations be limited to exploratory discussions rather than establishing obligations on topics such as data flows and data storage 161 The negotiating parties continue to discuss the scope of any potential agreement but the outlook may be challenging given the different approaches and policies especially among the U S EU and China U S Bilateral and Plurilateral Agreements As traditional trade policy does not clearly reflect the pervasiveness of the digital economy and data is increasingly incorporated into international trade the line between goods and services and the application of the existing multilateral trade agreement system is not always clear As discussed above the WTO agreements provide limited treatment of some aspects of digital trade The United States has sought to establish new rules and disciplines on digital trade in its bilateral and plurilateral trade negotiations Existing U S Free Trade Agreements FTAs The United States has included an e-commerce chapter in its FTAs since it signed an agreement with Singapore in 2003 that has progressively evolved 162 The e-commerce chapter of U S FTAs usually begins by recognizing e-commerce as an economic driver and the importance of removing trade barriers to e-commerce 163 Most chapters contain provisions on nondiscrimination of digital products prohibition of customs duties transparency and cooperation topics such as SMEs cross-border information flows and promoting dialogues to develop e-commerce Some of the FTAs also include cooperation on consumer protection as well as providing for electronic authentication and paperless trading All FTAs allow certain exceptions to ensure that each party is able to achieve legitimate public policy objectives protecting regulatory flexibility Electronic Commerce Chapter The U S -South Korea FTA KORUS contains the most robust digital trade Article 1 in U S FTAs provisions in a U S FTA currently in “The Parties recognize the economic growth and opportunity that electronic commerce provides the force 164 In addition to the provisions in importance of avoiding barriers to its use and prior FTAs KORUS includes provisions on development and the applicability of the WTO access and use of the internet to ensure Agreement to measures affecting electronic consumer choice and market competition commerce ” Most significantly KORUS was the first attempt in a U S FTA to explicitly address cross-border information flows The e-commerce chapter contains an article that recognizes its importance and discourages the use of barriers to cross-border data but does not explicitly European Commission “75 countries launch WTO talks on e-commerce ” Press Release Database January 25 2019 161 WTO Joint Statement on Electronic Commerce INF ECOM 19 April 23 2019 162 https ustr gov sites default files uploads agreements fta singapore asset_upload_file708_4036 pdf 163 This statement was used in U S free trade agreements with Australia Bahrain Colombia Central America and the Dominican Republic Morocco Oman Panama Peru and South Korea Chile used a slightly different text 164 For more information on KORUS see CRS Report RL34330 The U S -South Korea Free Trade Agreement KORUS FTA Provisions and Implementation coordinated by Brock R Williams 160 Congressional Research Service 35 Digital Trade and U S Trade Policy mention localization requirements The financial services chapter of KORUS also contains a specific enforceable commitment to allow cross-border data flows “for data processing where such processing is required in the institution’s ordinary course of business ”165 In 2018 the Trump Administration and South Korea agreed to limited modifications of the agreement but no changes were made to provisions directly impacting digital trade United States-Mexico-Canada Agreement USMCA The released text of the proposed USMCA with Canada and Mexico aims to revise and update the trilateral North American Free Trade Agreement NAFTA and illustrates the Trump Administration’s approach to digital trade 166 The final text of the agreement pulls from and builds on many of the provisions from the Trans-Pacific Partnership TPP negotiated under President Obama which the United States did not ratify 167 The provisions of the proposed USMCA establish new rules and disciplines to remove trade barriers and counter discriminatory action while also providing governments with flexibility The provisions go much further than the KORUS agreement in establishing obligations on multiple aspects of digital trade and contrast sharply with China’s authoritarian approach discussed above USMCA provisions prohibit customs duties and discrimination against digital products requirements for source code or algorithms disclosure or technology transfer mandates The agreement protects electronic authentication and signatures electronic payment systems and consumer access to the Internet Provisions require anti-spam measures domestic legal frameworks for online consumer and personal privacy protection and identifies specific key principles and international guidelines that the parties must take into account USMCA contains broad provisions to protect cross-border data flows and restrict data localization requirements for financial services open data flows is subject to the financial regulator having access to data necessary to fulfill its regulatory and supervisory role The digital trade chapter also prohibits liability of internet intermediaries in line with current U S law and promotes the publication of government data through open-data formats The parties agree to cooperate on and promote a number of issues including risk-based cybersecurity privacy SMEs and the APEC Cross-Border Privacy Rules see below Other International Forums for Digital Trade Given the cross-cutting nature of the digital world digital trade issues touch on other policy objectives and priorities such as privacy and national security While U S and international trade agreements are one way for the United States to establish market opening and new rules and disciplines to govern digital trade not every issue is necessarily suitable for an international trade agreement and not every international partner is ready or willing to take on such commitments In other international forums outside of trade negotiations other tools can be used to encourage high-level nonbinding best practices and principles and align expectations 165 KORUS FTA Chapter 13 Annex 13-B Section B https ustr gov sites default files uploads agreements fta korus asset_upload_file35_12712 pdf 166 The USMCA text is available at https ustr gov trade-agreements free-trade-agreements united-states-mexicocanada-agreement 167 For more information on the TPP see CRS In Focus IF10000 TPP Overview and Current Status by Brock R Williams and Ian F Fergusson Congressional Research Service 36 Digital Trade and U S Trade Policy G-20 The influential Group of 20 G-20 is one venue for establishing common principles and digital issues have been on its agenda recently 168 At the 2017 meeting G-20 leaders established the Digital Economy Task Force DETF The G-20 Digital Economy Ministerial Meeting issued a declaration that identified requisites for a thriving digital economy and specific recommendations 169 As host Japan is expected to build on the digital economy agenda in 2019 with a specific emphasis on privacy and data governance OECD The OECD provides a forum to discuss principles and norms to facilitate a thriving digital economy The OECD issued a series of reports in 2017 and 2018 related to digital trade including an assessment of the digital transformation of each OECD economy170 and bridging the digital gender divide 171 The reports identified specific challenges and recommendations including establishing a national digital strategy and removing market access barriers The United States could work with its OECD partners to reinforce principles including an open Internet and the need to balance public policy objectives The OECD Global Forum on the Digital Security for Prosperity also allows for multi-stakeholder international engagement to discuss issues such as the governance of digital security issues APEC The Asian Pacific Economic Cooperation APEC forum presents another opportunity for sharing best practices and setting high-level principles on issues that may be of greater concern to developing countries with less advanced digital economies and industry 172 APEC is implementing the Cross-Border Privacy Rules CBPR system to be consistent with the already established APEC Privacy Framework 173 According to the Business Software Alliance most countries across the globe have data protection frameworks based on either the APEC CBPR system or the EU regime but some countries still lack privacy laws 174 Currently the United States Japan Mexico Canada South Korea Singapore Taiwan and Australia are CBPR members the Philippines is in the process of joining Some observers view CBPR which aims to reflect a diversity of national privacy regimes as a scalable solution that could potentially be adopted multilaterally Others may view the EU regime as a more comprehensive top-down approach Due to its voluntary nature APEC has served as an incubator for potential plurilateral agreements Regulatory cooperation Ongoing regulatory cooperation efforts are another important tool for addressing differences between parties better aligning regulatory requirements and reducing inconsistencies and redundancies that can hamper or discriminate against the free flow of data goods and services These forums provide an opportunity for U S agencies to work directly with overseas counterparts and focus on specific aspects of digital trade such as online privacy 168 The Group of Twenty G-20 is a forum for advancing international cooperation and coordination among 20 major advanced and emerging-market economies The G-20 includes Argentina Australia Brazil Canada China France Germany India Indonesia Italy Japan Mexico Russia Saudi Arabia South Africa South Korea Turkey United Kingdom and the United States as well as the European Union EU For more information on the G-20 see CRS Report R40977 The G-20 and International Economic Cooperation Background and Implications for Congress by Rebecca M Nelson 169 https g20 argentina gob ar en news g20-confirms-importance-digital-economy-global-development 170 OECD Key Issues for Digital Transformation in the G20 January 12 2017 https www oecd org internet keyissues-for-digital-transformation-in-the-g20 pdf 171 OECD Bridging the Digital Gender Divide Include upskill innovate October 30 2018 http www oecd org sti ieconomy bridging-the-digital-gender-divide pdf 172 Asia Pacific Economic Cooperation APEC is a regional economic forum established in 1989 with 21 Asian Pacific economies as members See http www apec org About-Us About-APEC aspx 173 http publications apec org Publications 2011 10 Enabling-Electronic-Commerce-The-Contribution-of-APECsData-Privacy-Framework 174 http cloudscorecard bsa org 2018 index html http cloudscorecard bsa org 2016 Congressional Research Service 37 Digital Trade and U S Trade Policy consumer protection and rules for online contract formation and enforcement The EU-U S Privacy Shield is one example of regulatory authorities working together to address such issues Issues for Congress Policy questions continue to evolve as the internet-driven economy and innovations grow Digital trade is intimately connected to and woven into all parts of the U S economy and overlaps with other sectors requiring policymakers to balance many different objectives For example digital trade relies on cross-border data flows but policymakers must balance open data flows with public policy goals such as protecting privacy supporting law enforcement and improving personal and national security and safety The complexity of the debate related to cross-border data flows and digital trade more generally involves complementary and competing interests and stakeholders Companies and individuals who seek to do business abroad and trade negotiators who seek to open markets may focus on maintaining open market access which may include cross-border data flows while others may want to limit foreign competition Privacy advocates may focus on protecting personal information Meanwhile law enforcement and defense advisors may seek the ability to access or limit information flows based on national security interests Digital trade raises numerous complex issues of potential interest to Congress with possible legislative and oversight implications Issues include         Understanding of the economic impact of digital trade on the U S economy and the effects of localization and other digital trade barriers on U S exports jobs and competition Examining how best to balance market openness and cross-border data flows with other policy goals such as right to privacy and the government’s need for access to protect safety and national security Considering if the United States would benefit from overarching digital privacy policy and what lessons can be drawn from other countries’ experiences and how to best balance this with U S trade negotiating objectives Effectively addressing important digital trade barriers and cybertheft Considering how best to assure public confidence and trust in network reliability and security that underlie the global digital economy and allow it to effectively and efficiently function Examining evolving U S trade policy efforts including how the proposed USMCA WTO plurilateral and potential new bilateral negotiations may address U S trade barriers set new rules and disciplines and respond to different standard-setting practices that may have global reach including by the EU and China Assessing if U S agencies have the necessary tools to accurately measure the size and scope of digital trade in order to analyze the impact of potential policies Assessing the effectiveness of the Trump Administration’s Section 301 actions involving Chinese trade practices and other bilateral efforts related to cybersecurity and digital trade Congressional Research Service 38 Digital Trade and U S Trade Policy Appendix Digital Trade Barriers Barriers to Internet Services         Discriminatory treatment of digital goods and services Duties on digital goods or services Foreign investment restrictions Intermediary liability without safe harbor or fair-use provisions that could make internet platforms responsible for content posted by users Low de minimis threshold for customs duties on imported goods including ecommerce purchases “Snippet tax” on search engines that quote text snippets as part of search results Taxes on over-the-top OTT services such as media messaging or voice-overinternet-protocol VOIP Web filtering and blocking of content Localization Barriers     Data localization requirements prohibiting cross-border data flows and requiring the use of local servers for data storage or processing Limited or no access to foreign government procurement markets Requirement for use of local technology Comprehensive privacy regulations that may discriminate against foreign providers Technology Barriers    Restrictions or prohibitions on use of encryption Source code technology or other intellectual property rights IPR forced transfer requirements Local testing and certification for imported information technology IT equipment may add costs or delays for imported goods Other Barriers   Cybersecurity threats or local requirements Weak IPR enforcement Congressional Research Service 39 Figure A-1 Levels of Perceived Digital Trade Barriers in Selected Countries according to the U S Trade Representative Source CRS based on U S Trade Representative 2018 National Trade Estimate Report on Foreign Trade Barriers Note This map is illustrative of digital trade barriers and not meant to be an exhaustive list CRS-40 Digital Trade and U S Trade Policy Author Information Rachel F Fefer Coordinator Analyst in International Trade and Finance Wayne M Morrison Specialist in Asian Trade and Finance Shayerah Ilias Akhtar Specialist in International Trade and Finance Acknowledgments Special acknowledgement to Amber Wilhelm Edward Gracia Jennifer Roscoe and Paulo Ordoveza for creation of the graphics Disclaimer This document was prepared by the Congressional Research Service CRS CRS serves as nonpartisan shared staff to congressional committees and Members of Congress It operates solely at the behest of and under the direction of Congress Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role CRS Reports as a work of the United States Government are not subject to copyright protection in the United States Any CRS Report may be reproduced and distributed in its entirety without permission from CRS However as a CRS Report may include copyrighted images or material from a third party you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material Congressional Research Service R44565 · VERSION 21 · UPDATED 41