Preserving digital trade is vital to America’s economic future

The growth of the Internet has transformed the makeup of the global economy, creating vast opportunities for digital trade. The U.S. International Trade Commission, for example, suggests that digital trade has increased the United States’ real GDP by close to five percent. Sustaining and accelerating that growth is an economic and policy imperative in an age when data is reshaping society and commerce.   

Congress is expected to soon take-up legislation on Trade Promotion Authority – or TPA – which can, if passed, pave the way for landmark trade agreements to be finalized. Both the TPA bill and the first of these agreements, the Trans-Pacific Partnership (TPP), would expand global trade and GDP, in no small part by preserving the free flow of data between nations and by preventing countries from implementing forced data localization policies. Together, these measures will strengthen America’s place at the forefront of the world’s digital economy. 

{mosads}Protecting cross-border data flows via TPA and the TPP is vital to the growth of the U.S. economy. IDC estimates that 70 percent of the world’s IT market lies outside of the United States. Ensuring U.S. companies’ unrestricted access to that market is crucial at a time when the pace of data-driven innovation is accelerating exponentially. According to the Business Roundtable, there has been an 18-fold increase in online cross-border data flows between 2005 and 2012. Another eight-fold increase is projected by 2025. Data is the new natural resource, and we should be growing – not limiting – its potential to power new innovations. 

Simply removing restrictions on cross-border data flows in digitally intensive industries would increase the U.S. real GDP by an estimated $16.7−$41.4 billion, according to the International Trade Commission. As the world’s leading services exporter, and the leader in the technologies and services that enable digital trade, the United States has the most to lose from the expansion of digital protectionism. On the flip side, all countries touched by agreements that follow the “platinum standard” digital trade example of TPA and the TPP stand to benefit. The Business Roundtable found that more connected economies experience up to 40 percent greater GDP growth from data flows than less connected economies. 

Barriers to digital trade can come in a variety of forms, including traditional mechanisms and those specific to online commerce. TPA and the TPP would restrict countries from arbitrarily forcing companies to house data or locate IT infrastructure within their borders as a condition of doing business. A study by the European Center for International Political Economy found that localizing servers – which limit data flows by mandating that data be stored and processed on computer servers located within a country – would significantly hurt GDP in all of the countries examined, including a number of TPP negotiating countries. 

One key argument for forced localization is that information is safer when stored locally. This is a flawed concept. Recent reports of international computer hacking make it clear that simply storing data locally does not make it secure.   

A more effective approach to protecting data would focus on applying up-to-date technical security solutions, implementing appropriate secure operating procedures and properly educating users. TPA and the TPP follow this logical and evidence-based theory, leading to stronger economies and performance as well as a steady stream of innovative new products and services. 

TPA and the TPP recognize the merit of these methodologies by removing key restrictions and fostering growth in services delivered electronically by the information and communications (ICT) sector. The Bureau of Economic Analysis estimates that U.S. exports of “ICT-enabled services” grew from 45 percent of U.S. services exports in 1998 to 61 percent in 2010. Today, U.S. firms are the global leaders in ICT services. Without the digital trade provisions enshrined in TPA and the TPP, protectionist policies could limit further growth by U.S.-based companies, which include 31 of the world’s top 50 Internet firms.  

Digital trade is an important issue for a large swath of the business community, not just pure Internet companies. Industries from insurance and financial services to telecommunications rely on ICT infrastructure and cross-border data flows for their day-to-day operations. In two-thirds of OECD countries, more than 95 percent of companies use the Internet, and studies by the McKinsey Global Institute calculated that 75 percent of the economic benefits from using the Internet accrue to traditional industries that are not Internet pure-play companies. Clearly, many companies outside the technology space have a stake in ensuring open markets for electronically delivered services whether as providers or users of those services, or both. 

The interconnectedness of the modern economy underscores the criticality of digital trade. Without it, we risk surrendering many of the advantages America has enjoyed thanks to the rapidly expanding data economy.  

For all these reasons, IBM strongly urges Congress to pass Trade Promotion Authority legislation, and pave the way for American businesses and consumers to benefit from the Trans-Pacific Partnership.

Padilla is vice president of IBM Government and Regulatory Affairs. He previously served as under secretary for International Trade at the U.S. Department of Commerce, and assistant secretary of Commerce for Export administration.