US-Japan digital trade negotiators to take cues from updated North American pact

27 August 2019 12:45

Digital trade is slated to be one of the core issues in an upcoming trade deal between the US and Japan, and the Trump administration’s rewrite of the North American agreement will shed light on what’s to come.

The US and Japan announced an agreement in principle Sunday at a meeting in France of leaders of the Group of Seven advanced economies. Details of the accord haven’t been made public, but the renegotiated North American Free Trade Agreement, or Nafta, includes what experts describe as the most robust digital trade provisions in any trade pact.

“They’re the strongest in any trade agreement to date,” Joseph Whitlock, policy director for BSA | The Software Alliance, told MLex.

“These provisions aren’t just important for North America. These provisions are important as a precedent and currently the gold standard of digital trade disciplines internationally,” said Whitlock, who was most recently senior director for innovation and intellectual property at the Office of the US Trade Representative.

The digital trade chapter of the updated Nafta — now called the US-Mexico-Canada Agreement, or USMCA — would protect cross-border data transfers and limit data localization requirements.

Other key digital trade provisions in the USMCA include a ban on customs duties on digital products, such as e-books, videos, music, software and games. The deal would also allow suppliers to use electronic authentication or electronic signatures.

— Privacy rules —

The USMCA digital chapter builds on e-commerce provisions in an 11-country trade deal — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPATPP — that has been ratified by most of the parties, including Japan. US President Donald Trump had withdrawn from the agreement in 2017, preferring new bilateral deals with major trading partners such as Japan.

Unlike the CPATPP, the USMCA adopts standards recognized by the Organization for Economic Cooperation and Development and the Asia-Pacific Economic Cooperation, or APEC, a 21-country economic forum that includes Japan and the US.

The USMCA, for example, would limit governments’ ability to force companies to disclose propriety computer source code and algorithms. The CPATPP didn’t adopt these norms.

The USMCA would aid predictability for American consumers and businesses by declaring that APEC’s cross-border privacy rules are a “valid mechanism” to facilitate cross-border data transfers, according to BSA.

Algorithms are also covered by the USMCA's intellectual property protections, but not by the CPATPP. Experts say IP protections of algorithms would support the development of emerging technologies, such as artificial intelligence.

The developments on US-Japan digital trade come as Trump continues to blast what he says are China's unfair trade practices, such as intellectual property theft and forced data transfers, as part of a broader dispute with the Chinese government. And near the center of these tensions is Chinese telecom giant Huawei, which the US accuses of stealing trade secrets and other practices that threaten national security.

The US-Japan trade update also comes as other jurisdictions work on a broader framework on e-commerce under the World Trade Organization. In June, Japan led meetings to craft a digital policy discussion framework at the Group of 20 summit of world leaders.

The US and Japan share a robust understanding of digital trade, according to Jordan Haas, trade policy director at the Internet Association, which includes large tech firms such as Google, Amazon, eBay and Facebook.

“This agreement would advance America’s digital priorities with other countries and in the ongoing negotiations at the WTO,” Haas said.

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