ITC Should Highlight Nations' Data Localization Laws as Digital Trade Barrier, Stakeholders Say

The International Trade Commission should highlight foreign countries' data localization laws as a top barrier to digital trade in a forthcoming report, telecom and tech officials said Tuesday during an ITC hearing. The commission began an investigation in February at the Office of the U.S. Trade Representative's request into developments in the digital trade market and how laws in the U.S. and “key foreign markets” are affecting digital trade. The ITC is examining laws in the EU, Brazil, China, India, Indonesia and Russia. The commission is expected to release the first of three reports on the investigation by Aug. 29, with the other two reports to be released in 2018 and 2019.

Cross-border data flows are “the lifeblood of global digital trade,” so data localization laws and other statutes that restrict the free flow of information are a significant trade barrier, said Computer & Communications Industry Association Vice President-Public Policy Daniel O'Connor. He cited Russia's 2014 data localization law, which requires all operators processing Russian citizens' personal data to store such data on servers within its borders. It's likely to result in productivity losses for Russian businesses and “lost opportunities” for U.S. companies, O'Connor said. Less restrictive data localization laws can also hurt internet-based businesses, he said.

China has been “especially aggressive” in enacting data localization laws for security purposes, said Telecommunications Industry Association Director-Global Policy K.C. Swanson. South Korea's data localization law prevented Google parent Alphabet from building mapping services in that country, and Turkey's law requiring companies to establish local IT centers forced PayPal and other U.S.-based services to shut down operations there, said Software & Information Industry Association Senior Director-International Public Policy Carl Schonander. BSA|The Software Alliance Policy Director Leticia Lewis said developments in the EU on data flows “could pose significant barriers” to digital trade.

Countries “use a range of excuses” for enacting data localization laws such as privacy protection and economic stimulus, but “none hold up under scrutiny,” said Information Technology and Innovation Foundation Trade Policy Analyst Nigel Cory. “We should appeal to other nations’ self-interest: These policies won’t help them reach their privacy or security goals, and they’ll cause self-inflicted wounds by undermining the foundations of their own digital economies.”

U.S. policymakers should use the EU-U.S. Privacy Shield and the Asia-Pacific economic cooperation cross-border privacy rules as templates to seek international commitments to protect cross-border data flows, said Rapid7 Director-Public Policy Harley Geiger. Governments “can have legitimate interests” in seeking oversight of internet services within their borders, but overly restrictive laws can “make it prohibitively burdensome to provide access to digital services on a global basis,” Geiger said: “International agreements and standard-setting bodies should aim for a coordinated international strategy” on data flows.

The Internet Association and several entertainment sector groups focused during the hearing on copyright issues affecting digital trade. U.S. businesses are encountering “unbalanced” copyright measures globally, including the proliferation of ancillary copyright laws in the EU, said IA Director-Trade and International Policy Ari Giovenco. IA and other tech sector groups have repeatedly raised concerns about ancillary copyright laws, seen as a tax on use of news snippets, since the European Commission proposed a pan-EU ancillary copyright as part of a larger copyright law revamp (see 1608290062, 1609060078, 1609120026 and 1609150053). The EC's copyright directive proposal also includes other statutory changes that would “deviate from foundational principles” of the free and open internet and would restrict exports of U.S. online services to the EU, Giovenco said.

MPAA, RIAA and the International Intellectual Property Association focused on perceived lack of laws to effectively protect against online content piracy. Content theft “remains one of the most glaring obstacles to the legitimate digital marketplace,” said MPAA Executive Vice President-Global Policy and External Affairs Joanna McIntosh. Australia and other international markets are seeking to “weaken incentives for intermediaries to cooperate” with rightsholders on combating online piracy, she said. “Limitations on liability should ensure that intermediaries are incentivized to address and deter illegal activity conducted over their networks and services.”

RIAA believes “overbroad” safe harbors such as those enacted under Digital Millennium Copyright Act Section 512 and overbroad application of copyright exceptions remain an impediment, said Senior Vice President-International Policy George York. Illegal circumvention of technological protection measures also remains problematic, he said. TPM circumvention remains an issue in many countries, particularly in China given that country is a central point for the manufacture of circumvention tools, said IIPA Counsel Kevin Rosenbaum. He also pointed to USTR's focus in its 2016 Special 301 out-of-cycle review on IP infringement on stream ripping (see 1612210068), which illustrates why such services have a rising “destructive potential” to inflict damage on the music industry.

EBay Executive Director-Global Public Policy Brian Bieron and others also raised concerns about customs duties and other taxes. Many small and medium-sized businesses that use eBay face de facto tariffs in countries with low thresholds for paying tariffs, Bieron said. Canada has a $20 "de Minimis" threshold, while the U.S. raised its threshold last year from $600 to $800, he said. Etsy Senior Manager-Federal Advocacy and Policy Julie Stitzel called for universal rules on customs and tax exemptions to reduce barriers to e-commerce. ACT|The App Association believes “tolling” of data “directly contributes to the balkanization and reduced efficiency of the internet and effectively blocks” some services from market entry, said Senior Policy Counsel Brian Scarpelli.