Originally Published in the Fall 2017 WIIT Communique.
By Yuri Unno, Director, International Trade Policy, Toyota Motors North America
When the North American Free Trade Agreement (NAFTA) took effect in 1994, lowering trade barriers between the U.S., Canada and Mexico, the Internet was in its infancy. Negotiators were rightly focused on tariffs and non-tariff barriers — not the free flow of digital data.
By lowering traditional trade barriers, NAFTA transformed the North American automotive market. Manufacturers such as Toyota responded by building vehicles at highly productive U.S. factories and distributing them across the region. Toyota’s U.S. operations, which support more than 136,000 jobs in the United States, have a trade surplus with Mexico to this day.
With the Trump administration now calling for a renegotiation of NAFTA, it is time to update the agreement with the free flow of digital data that the 21st century economy demands.
In the globally competitive automotive industry, America’s leadership in data science is a critical advantage for manufacturers such as Toyota, which built 1.4 million cars and trucks in the U.S. in 2016 and exported its vehicles to 34 countries. When countries restrict transfers of data to the U.S., they effectively prevent America from making the most of its advantage.
On July 17, U.S. Trade Representative Robert Lighthizer released a 17-page document outlining the Trump administration’s approach to overhauling NAFTA. The plan calls for rules that would prevent NAFTA countries from limiting cross-border data flows, requiring the use of local data centers or mandating the disclosure of digital source code.
These protections are clearly important for Internet companies that rely on customer data. But they are increasingly critical for automotive suppliers and manufacturers as well.
We agree with Cummins, the Indiana-based engine maker, which explained the importance of this issue during a July 18 hearing of the House Ways and Means Committee.
Tom Linebarger, the CEO of Cummins, noted that the company now collects telematics data from engines in the field to assess their performance and make improvements. Restricting the transfer of telematics data is effectively a restriction on American innovation.
With the digitalization of the economy, “our ability to compete freely and not to be restricted by where we have to keep data and how we have to gather data will become more and more important,” Linebarger said. “Every manufacturer – it’s not just going to be computer companies and banks – is going to be worried about that.”
Telematics is just one example of why data transfers are so critical to the U.S. auto industry.
Toyota operates 14 manufacturing plants in North America, including ten in the United States, two in Mexico, and two in Canada. We anticipate investing an additional $10 billion in our U.S. operations over next five years. And many of the cars we assemble in the U.S. go to Mexico and Canada, which are vibrant and growing markets for our U.S.-built cars and trucks.
Because we have employees, customers and suppliers in all three countries, we rely on data transfers for vehicle service, marketing, sales, financing, human resources and more.
We are troubled to see more and more countries imposing such restrictions. That includes Mexico, which passed a law in 2010 restricting cross-data border flows and making it more difficult for us to access data on our Mexican customers, employees and business partners.
A renegotiation of NAFTA would be a perfect opportunity to create a template for a modern trade agreement that recognizes the importance of free data flows.
Digital trade was a major emphasis during the negotiation of the Trans-Pacific Partnership. The renegotiation of NAFTA presents another chance to create state-of-the-art protections for cross-border data flows that can be applied in future agreements.
Taken as a whole, the original NAFTA deal allowed Toyota to establish an integrated North American supply chain to support U.S. factories. Most vehicles assembled in Mexico contain extensive U.S. content, while U.S.-built vehicles often contain Mexican and Canadian parts.
This is a reason to take caution in the renegotiation. We believe changes to the rules of origin in NAFTA would be hugely disruptive, endangering the American jobs that support our supply chain. For the same reason, we strongly believe that NAFTA should remain a trilateral agreement. However, we also recognize that NAFTA is more than 20 years old and could benefit from being updated and modernized to incorporate state-of-the-art provisions.
We at Toyota stand ready to support USTR’s efforts to make NAFTA a better and stronger agreement that supports U.S. automotive manufacturing and jobs. Improved protections for cross-border data transfers would be the perfect place to start.
About the Author: Yuri Unno represents interests of Toyota on trade issues in front of the Executive Branch and to Congress, as well as Embassies in Washington and other key diplomatic places such as Geneva.
She also provides creative and precise advice and analysis to the company executives on international
issues that could affect Toyota’s U.S. and global operations.
Prior to joining Toyota in 1999, she worked as an Asia Analyst at G7 Group, a consulting firm providing policy analysis affecting financial investment. She wrote an analytical piece on the Japanese financial market, Nikkei and Yen trends for daily briefings, and managed publication of Japanese daily briefings to the international clients.
Ms. Unno received a Master of Arts from the Elliott School for International Affairs at George Washington University and Bachelor of Arts in Economics, and Bachelor of Arts with honors in Political Science from Penn State Erie, the Behrend College.
The views expressed by the author(s) of article(s) published in this newsletter are their personal views and should not be interpreted as the views of The Association of Women in International Trade (WIIT) or its individual members. See full disclaimer here.