By Brad Simonich

This week, the United States, Canada, and Mexico commenced the renegotiation of the North American Free Trade Agreement (known as NAFTA 2.0). As American officials negotiate trading priorities with two of our country’s largest trading partners, they must ensure that this trade agreement includes modern digital trade rules to reflect the dynamism and interconnectedness of our global, internet-driven economy.

ACT | The App Association represents thousands of small business app developers and innovators who help drive the  $143 billion app ecosystem. These members are increasingly looking to enter new markets outside the United States, but they often encounter trade barriers in the form of laws, regulations, policies, or practices that exclude U.S. goods and services from foreign markets, artificially stimulate exports of domestic goods and services to the detriment of U.S. companies, or fail to provide adequate and effective protection of U.S. companies’ intellectual property rights. While these barriers use different means, they have the same end: stifling U.S. exports and investment. The App Association is committed to mitigating and eliminating these trade barriers to help American innovators thrive, grow, and create jobs here at home.

We believe NAFTA renegotiation efforts are important for trade and commerce between the United States, Canada, and Mexico, and they offer a significant opportunity to address modern economic realities and digital trade issues in a trade agreement. The App Association recently submitted comments and suggestions to the Office of the U.S. Trade Representative (USTR) to explain the importance of NAFTA to the small business software development community, and how NAFTA 2.0 has the potential help the app economy grow and create jobs. As discussions proceed, we urge trade negotiators to consider the following trade priorities:

  • Facilitate Cross-Border Data Flows: The global economy depends on the seamless flow of data between economies and across political borders. As innovative small app development companies seek new markets to grow their businesses and support more American jobs, they must be able to rely on unfettered data flows. NAFTA 2.0’s new digital trade chapter should unambiguously preserve this ability.

 

  • Condemn Data Localization Policies: American companies looking to enter overseas markets increasingly face foreign regulations that force them to build and/or use local infrastructure as a requisite for conducting business in the country. These data localization requirements seriously hinder imports and exports, jeopardize a country’s international economic competitiveness, and undermine domestic economic diversification. Small and medium-sized app companies do not have the resources to build or maintain unique infrastructure in every country in which they do business, effectively excluding them from commerce. A renegotiated NAFTA should clearly prohibit data localization policies, subject to reasonable exceptions.

 

  • Prevent Customs Duties on Digital Content: American app developers and technology companies utilize the internet’s global nature to reach the 95 percent of consumers who live outside of the United States. However, policies that levy customs duties on data shared across political borders directly contributes to the balkanization of the internet and blocks products and services from market entry.

    Since 1998, World Trade Organization members have agreed to end customs duties on electronic transmissions; however, this policy has not been proposed or implemented by any of the United States or its NAFTA trading partners. The App Association strongly encourages a renegotiated NAFTA include a permanent prohibition of customs duties on electronic transmissions to benefit the NAFTA region and demonstrate opposition to this practice globally.

 

  • Challenge Requirements that Make Market Entry Contingent Upon Source Code Transfer: Several governments outside of the NAFTA region have implemented policies that require companies to transfer or provide access to proprietary source code before being granted legal entry into a country’s marketplace. Intellectual property remains the lifeblood of app developers’ and tech companies’ innovations. The forced transfer of source code not only presents an untenable risk of theft and piracy, but it also establishes disincentives for digital trade. We urge USTR and NAFTA negotiators to prohibit the disclosure of source code as a condition of market entry.

 

  • Promote the Use of Strong Encryption Techniques: American app innovators depend on technical data protection methods and strong encryption techniques to keep customers safe from identity theft and other harms. Unfortunately, several countries continue to demand that “backdoors” be built into encryption frameworks to allow government access, which jeopardize the safety and security of data by creating known vulnerabilities that unauthorized parties can exploit. The success of an app developer’s product depends on the trust of its end users, and a renegotiated NAFTA should promote the use of advanced encryption techniques to protect data.

 

  • Encourage the Protection of Intellectual Property: Theft and disregard for intellectual property and trade secrets hurts the App Association’s members and the billions of consumers who rely on their app-based products and services. Intellectual property violations can lead to customer data loss, interruption of service, revenue loss, and reputational damage – each consequence alone can kneecap small app developers, but together can cement their demise. We believe strong protection of intellectual property rights is essential, and urge NAFTA negotiators to uphold provisions that fairly protects intellectual property rights of all kinds.

While NAFTA trade negotiators will discuss a variety of trade priorities and issues, we believe the negotiation priorities listed above are essential to a trade agreement that can leverage the power of the digital economy to create prosperity opportunity for American businesses and workers. Considering the plethora of digital trade issues our members encounter across the globe; a successfully renegotiated NAFTA can provide an important framework for modern trade agreements. The App Association will remain an eager and interested resource throughout the negotiations to support a digital trade environment that allows American small businesses, innovators, and entrepreneurs to thrive and grow.