by Mark MacCarthy

The U.S. must set the rules for digital trade

Mar 04, 20154 mins

Trade Promotion Authority is a crucial step to preserve U.S. digital trade leadership

global trade partners
Credit: Thinkstock

The U.S. is in the final stages of negotiating the Transpacific Partnership (TPP), a huge free-trade agreement with Japan, Mexico, Canada, Singapore and seven other countries. But without legislation guaranteeing expedited Congressional approval, this critical trade agreement—and the enormous economic benefits of digital trade—could be in jeopardy.

President Obama has called for the Congressional passage of TPA (Trade Promotion Authority) legislation, which gives Congress the ability to approve trade agreements under expedited legislative procedures that do not allow amendments. While this may seem like a technicality, it is far from it: without TPA our negotiating partners will assume that any deal will be subject to further changes by Congress, and they’ll refuse to put forward their best offers.

Not only is this legislation crucial for finalizing the TPP and two other pending trade agreements which will set the template for 21st Century trade, it is essential for protecting the U.S.’s global digital leadership.

Digital technologies are transforming the global economy and are an increasingly important part of American’s economic strength. The Brookings Institution reports that in 2012 the U.S. exported $140.6 billion in digitally-deliverable services to the European Union alone, and has a worldwide digital trade surplus of $150 billion. These digitally-enabled exports grew at an average annual rate of 9 percent from 1998 to 2010, three times faster than all other services exports. And the impact is felt well beyond the tech businesses: the Bureau of Economic Analysis reports that digital technologies improved exports in insurance, financial services, telecommunications and other industries.

But all of this is it risk if governments restrict the cross-border flow of data or demand that data is stored locally. And many countries, including China, India, Russia, Vietnam, and Malaysia have already proposed or adopted data localization rules that effectively discriminate against U.S. companies.

Recognizing the threat, several years ago the U.S. and European Union agreed to the right principles, which prohibit such restrictions. TPA legislation introduced in 2014 would have given Congressional approval to these principles by making it the official U.S. negotiating position that governments must refrain from measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.

So the facts are clear, but the politics are more complicated. Some lawmakers believe Congress should have more leverage in trade talks to ensure that trade negotiators don’t undermine U.S. interests on issues they care about. Others object simply because they don’t like any trade agreements.

But when you consider digital trade’s contribution to jobs and wages, there should be no controversy.

Open digital trade is critical to U.S. tech industries, which are major contributors to job creation and economic growth. According to a recent report from the Software & Information Industry Association, about 12 percent of American software production is exported, totaling up to $57 billion in 2012. Moreover, exports of software and related services have grown by at least 9 percent each year since 2006—nearly 50 percent faster than all other U.S. exports. These exports helped fuel a continual, dramatic increase in software employment, rising from 778,000 jobs in 1990 to 2.5 million in 2014.

And software jobs are good jobs. In fact, through the recent recession the average computer system design worker made $86,457 per year—three times as much as the average wage offered by the other four industries that also created large numbers of jobs during the downturn.

The economic value of digital trade cannot be understated, and neither can the importance of TPA. The U.S. needs effective trade agreements to solidify our favorable global position in digital trade, and TPA is critical to negotiating these agreements.

And let’s be clear: If the U.S. doesn’t set international digital trade rules, other governments will. Congress needs to act now to preserve our leadership in digital trade.