USMCA: What’s in the Digital Chapter for Your Company

Posted on 29th January 2020

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Logan Finucan
Senior Manager, Data Policy & Trust
logan.finucan@accesspartnership.com

After passing both the House and Senate with overwhelming bipartisan support, the United States-Mexico-Canada Free Trade Agreement (USMCA), a long-overdue update to NAFTA, got its final signing ceremony today.  USMCA is a landmark deal for the technology and digital ecosystem that will create a strong foundation for the expansion of trade, investment, and innovation. It sets a new global high standard protecting the free flow of data, surpassing the previous high mark of the Trans-Pacific Partnership (TPP).  In addition to supporting a more seamless digital economy in North America for businesses of all types, it will become the new baseline for new US trade agreements.

Data Localisation – First and most importantly, USMCA achieves clear, simple bars to data localisation.  Many countries are increasingly restrictive regarding in-country storage of data, raising operating costs for businesses around the world and weighing down the digital economy. Protecting and promoting cross border data flows facilitates global commerce, fosters innovation, and enhances security. While the financial sector missed out on data localisation protections in TPP, USMCA incorporates a new standard that makes it much harder for financial regulators to require it if they have access to the data they need to perform oversight.  This precedent is key.

Privacy – Like most trade agreements, privacy and personal data protection remain loopholes that can be used to restrict data flows. But the USMCA seeks to tighten the circumstances in which these can be invoked.  Further, it encourages greater cooperation on inter-operability of privacy regimes and explicitly recognises the APEC Cross-Border Privacy Rules as a valid system for such transfers, promoting a better global environment for businesses – from multinationals to SMEs – to move customer and employee data freely.

Forced IP Disclosure – USMCA, like TPP, stipulates that governments cannot force companies to the disclose source code in order to enter a market – clearly targeted at getting countries to disavow a favourite tool of Chinese intellectual property theft. USMCA goes a step further to also includes proprietary algorithms. Further, USMCA protections more broadly than TPP, covering not just mass-market software but all software, including in critical infrastructure.

Cybersecurity – Digital trade and cybersecurity are becoming more and more intertwined. As the global economy grows, so does exposure to the risks and costs of cyberattacks. USMCA is one of the first trade agreements in the world to include commitments on cybersecurity policy. Parties agreed to principles for cybersecurity policy consistent with the U.S. NIST Cybersecurity Framework – a widely adopted benchmark for effective management of cyber risks. This will both support risk-based effective cyber regulation, maximise the synergy between the cybersecurity policy of different countries, and minimise barriers to trade in North America.

The importance of USMCA’s digital trade provisions is less in the lowering of barriers between the US, Mexico and Canada – which are already well aligned – but in planting a flag for these standards. They send a strong message to other countries around the world of what a high-quality trade agreement should look like. Going forward, look for how the three parties – especially the US – push similar standards into other trade agreements. The recently concluded package of digital trade rules agreed by the US and Japan already incorporated language almost identical to USMCA on digital trade topics.

Overall, USMCA standards will help to harness digital trade for prosperity by enabling free access, a secure market, and low barriers to growth. It safeguards privacy yet allows cross border data flows and effective intellectual property rights, benefiting businesses and consumers alike. It is a high standard agreement that will ensure an innovative future for the digital economy.

Authors:

Logan Finucan, Senior Manager, Data Policy & Trust
Weiwei Wu, Policy Analyst, Data Policy & Trust

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