Digital trade in a post-PRISM world

Even before Edward Snowden became a household name, U.S. companies were facing an onslaught of anti-competitive policies from other nations intent on giving their domestic companies an advantage at the expense of foreign competitors, including requiring domestically manufactured or domestically supplied services, mandating that service-providers use domestic infrastructure or facilities, and demanding compliance testing be performed in-country. In particular, many nations have embraced digital industry protectionism by, among other steps, requiring data to be stored or processed within the country. For example, Greece, Vietnam and Brunei passed laws requiring data generated within the country to be stored on servers within the country. And Russia, Venezuela and Nigeria have passed regulations requiring that IT infrastructure for payment processing be located domestically. Ostensibly these policies are to protect privacy or national security, but there is no question that most are advanced for purely self-interested economic reasons that violate the principles of free trade.

For the last several years U.S. government officials have fought back against these efforts, arguing that the USA PATRIOT Act did not grant the federal government carte blanche to access electronic data. But their ability to make this case going forward has been severely compromised by revelations about the size and scope of the NSA’s surveillance efforts. The existence of widespread government electronic monitoring now legitimizes these barriers to digital trade: as long as the United States maintains its current policies on electronic surveillance, any country that wants to give preference to its domestic providers can simply say it opposes PRISM and effectively shut down the debate.

{mosads}Given the likely harm to the U.S. tech sector and the broader U.S. economy, the Obama administration’s response has been insufficient. In particular, the administration’s insistence that only non-U.S. persons are targeted by the program provides cold comfort to businesses and consumers in other nations who are questioning whether they should do business with U.S. companies. Moreover, the gag order that prevents U.S. companies from discussing the nature of the electronic surveillance means that U.S.-based companies will have little credibility with customers (or potential customers) even if their products and services are free from government monitoring. Unless something changes, the future prospects for U.S. businesses in digital trade will fall substantially short of their potential.

To remedy this, the administration and Congress should take two immediate steps. First, the government should declassify aspects of the programs that have been already been revealed or partially revealed and halt their implementation. Even if you endorse the view that PRISM and related surveillance programs are necessary in the fight against terrorism, these programs will be ultimately ineffective if their presence dissuades businesses and consumers from using the services of U.S. companies. Policy choices are always about trade-offs, and it is hard to see how the benefits of keeping this program classified outweigh the economic costs of its continued secrecy. Moreover, the classified nature of the program has resulted in national security interests trumping economics interests in the decision-making process. A more open and democratic debate might have had different outcomes, and it is long overdue for the American public to be included in that discussion. With that in mind, Congress should hold hearings on the impact of PRISM on U.S. competitiveness, particularly for trade in digital goods and services.

Second, the administration and Congress should make firm commitments to transparency. Specifically, Congress should pass legislation requiring companies to disclose on a regular basis the details about government requests for user information, including the number of individuals affected and the type of authority used for each request. In addition, the Administration should work with international partners to secure transparency as a key component of future trade agreements so that companies are able to disclose the extent and nature of mandatory surveillance by foreign governments.

Taking these steps will help ensure that national security interests are balanced against economic interests, and that U.S. businesses engaged in digital trade are able to effectively compete globally.  Failure to act will make it more likely that the next Twitter or Facebook will not be an American company.

Castro is a senior policy analyst with the Information Technology and Innovation Foundation.