Sep 29, 2016 - 9:00am

The Case for the TPP: Fostering the Digital Economy

Senior Vice President for International Policy

What is the Trans-Pacific Partnership (TPP) all about? With debate over this 12-nation trade agreement now underway, the Chamber is publishing this series making the case for the TPP’s approvalThis installment examines its provisions on the digital economy.

In today’s global economy, consumers, regulators, and businesses all benefit from a constant stream of data flowing seamlessly back and forth across national borders. Businesses use data to reach customers, create valuable products and services, enhance productivity, reduce costs, deter fraud, protect consumers, and foster economic growth and jobs.

In fact, the ability to move data across national borders has become essential for companies of all sizes and sectors.

First, consider how cross-border data flows allow many small and medium-sized businesses to reach new customers inexpensively and manage relationships with clients. The cost of trading on eBay’s online marketplace fell by 41% between 2005 and 2009, three times faster than the decline in costs for traditional trade, according to an analysis commissioned by the San José-based company.

Cross-border data flows allow businesses to reach new markets, selling Internet-based products directly to customers abroad.

Tapping into the global digital economy is a huge multiplier for small businesses. More than 95% of the small firms on eBay have become exporters, and they tend to export to 25 or more countries per year. In fact, they almost have to work to avoid becoming exporters.

In addition, manufacturers rely on data flows to manage their supply chains, monitor inventory, and reach new customers. They leverage data analytics to manage increasingly sophisticated equipment such as turbines, jet engines, and locomotives. Using data flows to connect manufacturing processes and products in the Internet of Things holds great promise as a way to save energy, monitor and care for expensive equipment, and maximize efficiencies.

Cross-border data flows allow service providers to reach vast new markets, selling Internet-based products directly to customers abroad. To a degree, this reflects the insights of Marc Andreesen in his 2011 essay “Why Software is Eating the World.” Today, U.S. companies are leading the way in helping others use data more efficiently by providing cloud computing services, driving innovation and growth.

In the financial services sector, cross-border data transfers allow companies to provide innovative pricing solutions, manage risks, and where appropriate, work with regulators to prevent fraud and protect consumers. This all ensures easier access to the credit that entrepreneurs need to create jobs.

Consider how it all comes together in this example offered by Christopher A. Padilla Vice President, Government and Regulatory Affairs, IBM Corporation, in testimony before the House Committee on Ways and Means:

Let’s imagine for a moment that as Members of Congress you have been asked to participate in an inter-parliamentary dialogue on trade with the European Parliament in Brussels.

As you check in for an evening flight to Brussels via London, the airline sends data ahead of you to Heathrow to facilitate the transfer of your baggage between flights, and to communicate your meal preferences to the next flight crew.

While you’re flying across the Atlantic, the engines of your aircraft are automatically transmitting ahead to ground crews in London, via a satellite link to a data center in the United States, that they will require some minor maintenance upon landing. The necessary parts are searched on a database in France, pre-ordered from inventory in the UK, and sent via express delivery to Heathrow.

When you land, you take advantage of your layover to use your U.S. bank ATM card to get some local currency, post a few photos to your social media accounts, check the Weather Channel app on your iPhone to see if it will be cloudy in Brussels (spoiler alert: it will be), and—while you’re there—to watch live feed on your tablet of Serena Williams winning another Wimbledon title via the tournament app.

You’re not even at your destination but in less than 12 hours, you have created, caused, or benefitted from literally scores of cross-border data flows. Your flight information, your baggage count, your meal preferences, your banking transaction, your social media post, your weather inquiry and your sports fix – none of it would be as easy and seamless as you’ve come to expect were data not permitted to flow freely in the cloud.

There’s an undeniable “gee whiz” attraction to the technology behind cross-border data flows. Nonetheless, some governments have advanced rules restricting the free flow of data across borders, often doing so under the guise of protecting national security or promoting domestic innovation. Several governments have introduced measures that require certain types of service providers to store or process data domestically as part of the price of doing business in the country.

Given the increasing importance of data flows to businesses of all sectors and sizes, it’s easy to see how barriers to digital trade can stifle economic growth and job creation. Such rules may lead businesses to avoid doing business in a given market altogether.

In any event, local businesses are placed at a disadvantage to their global competitors when they are deprived of valuable choices and the ability to use the best available technology, regardless of location. Allowing for data to be processed and transferred from storage infrastructure in one country to another allows companies to leverage economies of scale, resulting in cost and security improvements.

Nor is privacy a legitimate objection to rules supporting data flows. Many countries have demonstrated that the freedom to move data across borders can coexist with their strong data protection rules, which remain unaffected by the TPP.

The TPP insists that governments 'shall allow the cross-border transfer of information by electronic means.'

To secure the benefits of cross-border data flows, the TPP includes provisions to ensure that enterprises and individuals can move data across borders in a reliable and secure manner. The TPP insists that the 12 governments “shall allow the cross-border transfer of information by electronic means.” In the TPP, the signatory governments further commit that they will not require businesses “to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.”

These are strong, unambiguous rules, and seeing them come into force is a high priority for many American companies. As Padilla concluded his testimony:

If the United States wants to lead the technological race in the 21st Century, it must be at the forefront of writing the digital “rules of the road.” Why? Because digital trade holds the potential to create tremendous growth for the United States and the world – as long as our trading partners do not impose barriers that destroy economic opportunities before they are created. Because we are the leaders in this space, American companies have the most to lose from digital protectionism… By negotiating trade rules to keep data flowing freely across borders, the United States is once again leading the global economy toward a more prosperous, open, and interconnected future.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.