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USMCA Brings Businesses into the 21st Century

The United States-Mexico-Canada Agreement (USMCA) is on its way to ratification in the U.S. Congress, marking a critical and historic opportunity to modernize the United States’ economic relationship with Canada and Mexico – two of its largest trading partners. This landmark agreement is essential for all businesses to compete in today’s economy.

Global commerce has changed dramatically since North America’s current trade pact, the North American Free Trade Agreement (NAFTA), was signed 25 years ago. In 1994, less than 0.4 percent of the global population used the internet, compared to more than 58 percent in 2019. In 2016 alone, the economic impact of the internet was $4.2 trillion – the equivalent of the world’s fifth largest national economy – and the ability to transfer, store, and process data across borders has increased global GDP by 10.1 percent. Half of all value created in the global economy over the next decade will be created digitally.

Despite these fundamental shifts, the United States’ current trade agreement with Mexico and Canada – which sets rules covering 29 percent of the United States’ total international trade – has failed to keep pace with the rapidly changing global economy. Look no further than the text: the NAFTA mentions the telegraph but not the internet.

Fortunately, the USMCA will address that disparity. Following months of bipartisan negotiations, the U.S. Congress is now poised to enact legislation that will make the USMCA law. The agreement recognizes that data and innovation are foundational components of the world’s economy and establishes a first-of-its-kind digital trade chapter. That’s why the tech industry strongly urges policymakers to ratify the USMCA, thereby setting the gold standard for modern trade provisions and helping businesses in the United States innovate and compete in the 21st century economy.

It’s not only tech companies that benefit from the USMCA’s digital trade provisions. U.S. companies across all industries rely on data, technology, and digital services to optimize their operations, enable their employees to collaborate, and boost their ability to meet customer needs. The USMCA creates a better environment for all of them. Here’s how:

  • Enables Free Cross-Border Data Flow. Seventy-five percent of the value created by cross-border data flows accrues to traditional industries such as agriculture, manufacturing, finance, hospitality, logistics, and tourism. For example, manufacturers rely on data flows to optimize their inventory and ensure that they don’t leave unsold finished products gathering dust on warehouse shelves. The USMCA ensures the ability of U.S. companies both large and small to transfer data across borders.
  • Addresses Data Localization. Governments throughout the world are instituting measures that impose restrictive, and at times explicitly protectionist, requirements for in-country storage of data. The USMCA prohibits these requirements, ensuring that companies can store their data where it makes the most technical and commercial sense, and where that data is most secure. This ensures that companies of all sizes can continue to take advantage of digital services and compete more effectively at home and overseas.
  • Prevents Discriminatory Trade Barriers. The ability to digitally deliver products has contributed to an enormously positive transformation in the way we consume goods and services and access information. The status quo is increasingly at risk as countries explore ways to use tariffs to discriminate against U.S. digital products. The USMCA makes prohibitions against digital tariffs permanent, maintaining a duty-free internet and sending a clear message to other trading partners.

    It also makes certain that testing and certification procedures for physical goods in the North American market are consistent, reducing expensive and unnecessary local testing requirements while enabling regulators to more effectively do their jobs. These and other provisions directly address trade barriers faced by companies in the United States today, which reduce U.S. exports and dampen job creation.
  • Protects Vital Company Tools. The USMCA protects companies from being required to share source code, encryption keys, or algorithms as a condition for market access, protecting the proprietary tools and formulas that make U.S. tech companies the most competitive in the world.
  • Protects Privacy and Personal Information. The USMCA includes state-of-the-art provisions committing the United States, Mexico, and Canada to protect citizen privacy by implementing internationally recognized principles in a non-discriminatory manner.
  • Promotes Risk-based Approaches to Cybersecurity. The USMCA strengthens cybersecurity capabilities and intergovernmental cooperation – protecting critical infrastructure and other key systems – by encouraging governments to use non-prescriptive, interoperable, and risk-based approaches for domestic regulations.
  • Provides Appropriate Protection to Innovative Online Services. The USMCA protects providers of online and cloud services so that they can host or process content of others at scale and thereby facilitate trade and improve U.S. competitiv­eness across many industries that rely on the internet.

Through the USMCA, the United States has a critical opportunity to update trade provisions to harness the benefits of digital technology for all businesses and strengthen its trading relationships for the 21stcentury. Policymakers should seize this opportunity to affirm U.S. leadership in the global economy by supporting the USMCA and setting a new global benchmark that will ensure a thriving, innovative U.S. economy.

Public Policy Tags: Trade & Investment