Modernizing Trade Agreements for the 21st Century

Originally Published in the Fall 2017  WIIT Communique.

By Chris Padilla, Vice President, IBM Government and Regulatory Affairs

Much has changed in the world since NAFTA was enacted over twenty years ago, and the stunning growth of the internet and e-commerce is perhaps the most striking development in international trade. In 1994 when the agreement took effect, less than one percent of the world’s population had access to the internet. Today, that figure is close to fifty percent, with over 3.5 billion internet users worldwide.[1] Moreover, from 2005 to 2014, global data flows grew by 45 times.[2] The digital revolution has enabled American businesses large and small to compete in ways that no one could have expected when NAFTA was first negotiated. As the global economy continues to evolve in this new digital era, governments must modernize trade agreements to address new threats to open markets, innovation and growth.

Modernizing trade agreements in the 21st century will require a focus on a new type of trade – on digital trade – on the ability of businesses and individuals to deliver products and services online and to manage their global business operations by moving data freely around the world. IBM strongly agrees with the administration’s recognition of the importance of digital trade for creating jobs and economic growth opportunities in the United States. We also strongly support making digital trade a major objective in the recently launched negotiations with Canada and Mexico.

Digital trade is not just a priority for the tech sector. All businesses that operate globally across all industries – from banks, to airlines, to manufacturers – rely on the free flow of data. The ability to use the internet to reach customers in markets around the world is especially important for small- and medium-sized enterprises that would otherwise miss out on these opportunities. Digital trade enables start-ups and small businesses, including the IBM ecosystem partners around the world who are using the IBM Cloud to embed Watson’s cognitive computing capabilities in their products.

In order to ensure that U.S. companies of all sizes can compete in this new era, the administration is pursuing strong digital trade provisions in a modernized NAFTA. This will ensure that data can flow freely across borders without burdensome requirements that limit opportunity and stifle innovation. It would prohibit the NAFTA partners from enacting arbitrary requirements for storing data locally, which can be particularly burdensome for small businesses. It also could enable broader cooperation on critical priorities like cybersecurity, and establish strong protections for software source code, algorithms and other valuable intellectual property. Strong digital trade provisions in a modernized NAFTA will also set a new, high standard for future trade agreements.

Digital trade also supports good new jobs. At IBM, much of our employment and revenue growth in the United States is in new areas based on data-driven innovation, such as artificial intelligence, cognitive computing and cloud-based solutions. We have thousands of job openings throughout the U.S in the areas of cloud computing, cyber-security, mobile technologies, and many others. These jobs depend on the ability of IBM to collect, transfer, process and store data across borders to serve our clients around the world.

The Benefits of NAFTA

NAFTA has brought many benefits to the U.S. economy – from manufacturing, to agriculture, to services. A modernized NAFTA can ensure that the benefits of NAFTA will continue to grow as digital commerce accounts for a growing share of our trade with Mexico and Canada.

Here are a few of the highlights of how NAFTA has enabled our economy so far:

  • Trade between our countries supports 14 million jobs in the United States.[3]
  • Canadians and Mexicans purchased $445 billion of U.S. manufactured goods in 2016, generating $37,000 in export revenue for every American factory worker.[4]
  • Under NAFTA, U.S. agricultural exports to Canada and Mexico have quadrupled from $8.9 billion in 1993 to $38 billion in 2015.[5]
  • U.S. farms and ranches supply nearly 60% of Canadian agricultural imports.[6]
  • The U.S. services sector enjoys a significant trade surplus with both Canada ($27b) and Mexico ($9.6b).[7]
  • This is also the case when looking at the information and communications technology (ICT) industry. In 2015, the U.S. had an ICT services trade surplus of $635m with Canada, and a surplus of $826m with Mexico.[8]
  • From 1999 to 2015, the United States quadrupled its bilateral services trade surplus with Canada and doubled that with Mexico.[9]

Digital Trade Objectives for Modernizing NAFTA

While IBM supports the negotiation of a comprehensive trade agreement that covers the full range of trade issues covered in NAFTA and other U.S. agreements, we would like to highlight here a subset of those issues that are particularly important for enabling digital trade opportunities for American businesses and their workers.

  • Ensure the ability to transfer data across borders to conduct and manage business.
  • Prohibit parties from requiring local storage or processing of data as a condition of doing business in the country.
  • Ensure that companies do not have to share source code, algorithms, trade secrets or other intellectual property as a condition of market access.
  • Prohibit governments from imposing customs duties on electronic transmissions, including content transmitted electronically.
  • Ensure that U.S.-origin digital products, including software, receive non-discriminatory treatment relative to domestic-origin digital products in the partner countries.
  • Ensure that companies are not required to purchase and use local technology instead of technology of their own choosing.
  • Protect the use of encryption to meet consumer and business demand for product features that protect security and privacy while allowing law enforcement access to communications consistent with applicable law.

IBM, Trade and NAFTA

IBM is a global technology and innovation company headquartered in Armonk, New York. It is the largest technology and consulting employer in the world, with 380,000 employees serving clients in 175 countries. IBM’s expertise is in the intersection of technology and business, providing cognitive computing and cloud-based solutions that are changing the way the world works. IBM invests more than $5 billion each year in R&D and, for 24 consecutive years, has earned more U.S. patents than any other organization.

IBM’s operations around the world support manufacturing, software development, engineering, research, consulting and services jobs in the United States. From our founding over a century ago, IBM’s growth and success has depended on the ability to bring innovations to new markets. Today, about two-thirds of IBM’s revenues come from outside our original home market here in the United States.

Open markets and trade are essential to the success of IBM’s U.S.-based employees and clients – and to the success of each and every business across the U.S. economy. The negotiation of a modernized NAFTA will ensure that IBM and many other U.S.-based companies will be able to pursue growth opportunities in Canada and Mexico while establishing an important model for broader international digital trade rules.

1 United Nations, International Telecommunications Union. Time series of International ICT Data.
2 McKinsey Global Institute: “Digital Globalization: The New Era of Global Flows.” March 2016.
3 U.S. Chamber of Commerce: “The Facts on NAFTA: Assessing Two Decades of Gains in Trade, Growth, and Jobs.” March 8, 2017.
4 U.S. CEO Letter to President Trump regarding NAFTA Modernization – dated May 25, 2017. (paywall link).
5 Ibid
6 U.S. Chamber of Commerce: “The Facts on NAFTA: Assessing Two Decades of Gains in Trade, Growth, and Jobs.” March 8, 2017.
7 U.S. Department of Commerce, Bureau of Economic Analysis. International Data: U.S. Trade in Services. Release date: December 19, 2017
8 U.S. Department of Commerce, Bureau of Economic Analysis. International Data: U.S. Trade in ICT and Potentially ICT-Enabled Services, by Country or Affiliation. Release date: December 19, 2016. Note: data only includes ICT services.
9 U.S. Department of Commerce, Bureau of Economic Analysis. International Data: U.S. Trade in Services, by Type of Service and by Country or Affiliation. Release date: December 19, 2016

About the Author: Christopher A. Padilla has been Vice President, Government and Regulatory Affairs at IBM since April, 2009. He heads the company’s global government affairs function, leading a team of professionals in thirty-nine countries.

Prior to joining IBM, Mr. Padilla served as Under Secretary for International Trade at the U.S. Department of Commerce, working to develop U.S. trade policy, promoting and reviewing foreign direct investment in the United States, supporting U.S. exports, and ensuring compliance with trade agreements and trade laws. Before serving as Under Secretary, he was Assistant Secretary of Commerce for Export Administration, where he was responsible for U.S. controls on items limited for export for national security reasons. From 2005-2006, he served as Chief of Staff and Senior Advisor to Deputy Secretary of State Robert B. Zoellick. From 2002-2005, he was an Assistant U.S. Trade Representative, responsible for building public support for U.S. trade agreements. Mr. Padilla worked for more than fifteen years in the private sector prior to his government service, holding a variety of positions in marketing, business development, and government affairs at AT&T, Lucent Technologies, and Eastman Kodak Company.

Mr. Padilla holds both a B.A. and an M.A. in international studies from Johns Hopkins University, where he was elected to Phi Beta Kappa. He serves on the boards of the Information Technology Industry Council, the Council of the Americas, the US-India Business Council, and the YMCA of the USA. 

 

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.