Digital Trade Act of 2013 Instrumental to Protecting and Empowering the Global Digital Economy

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On Tuesday, December 10, Senators John Thune (R-SD) and Ron Wyden (D-OR) introduced The Digital Trade Act of 2013, legislation that would protect the Internet from restrictive measures that obstruct the free flow of data in the global economy. The Act establishes negotiating principles designed to guide U.S. negotiators in addressing key digital trade issues in future bilateral and multilateral agreements and in multi-stakeholder settings. Key principles include: preventing or eliminating restrictions on cross-border data flows, prohibiting localization requirements for data and computing infrastructure, ensuring that provisions affecting platform Internet sites are consistent with U.S. law, and recommitting to a multi-stakeholder model of Internet governance.

Affirming these principles protecting digital trade is vitally important because information and communications technologies have become the modern global economy’s principal driver of growth. For example, a March 2013 study by Finland’s Ministry of Employment and Economy estimates that, by 2025, half of all value in the global economy will be created digitally. Similarly, the McKinsey Global Institute estimates that the Internet alone accounted for 21 percent of aggregate GDP growth between 2007 and 2011 across 13 of the world’s largest economies. Digitally enabled services have also become a key U.S. export, with exports of digitally enabled services reaching $356 billion in 2011, up from $282 billion four years earlier.

Yet, unfortunately, a growing number of countries are erecting barriers to digital trade. As ITIF writes in Localization Barriers to Trade (LBTs): Threat to the Global Innovation Economy, these include LBTs such as Vietnam’s Decree 72, which mandates that Internet-based companies such as Facebook or Google must locate data centers inside the country as a requirement of providing digital services in Vietnam. And close to two dozen nations have introduced or are considering introducing local data storage requirements, in the misguided belief that data is more private and secure if it is stored domestically, even though mandating that data be stored locally has no positive effect on privacy or security, as ITIF writes in The False Promise of Data Nationalism. These “data mercantilist policies” create geographic restrictions on where ICT service providers can store and process data and constrain both the provision of digital services such as cloud computing and the free flow of data and information that is the lifeblood of the modern global economy.

Therefore, The Digital Trade Act of 2013 comes at a welcome time. Digital trade has become a vital component of both the U.S. and global economy, and ensuring free, open, unfettered global digital trade should become a key priority for both U.S. policymakers and trade negotiators going forward. As Senator Wyden notes, “The U.S. has the opportunity to establish new trade rules that preserve the Internet as a platform to share ideas and for expanding commerce and this legislation aims to help achieve these goals.”

The United States led in developing the Internet and ushering the world into the digital age; now it’s time for it to play an equal role in shaping the rules that will guide trade over those same digital platforms.

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.