IBM Comments on NAFTA Modernization

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Washington, D.C. (12 June 2017) – IBM (NYSE: IBM) today submitted the following comments on the proposed modernization of the North American Free Trade Agreement (NAFTA):

Introduction
IBM supports the administration’s efforts to modernize the North American Free Trade Agreement (NAFTA). We are grateful for the opportunity to share our observations, pursuant to Federal Register Notice 2017-10603; Docket: USTR-2017-0006, for how the agreement could be modernized to ensure the competitiveness of the American economy in the 21st century,

IBM is a global technology and innovation company headquartered in Armonk, New York. It is the largest technology and consulting employer in the world, with 380,000 employees serving clients in 175 countries. IBM’s expertise is in the intersection of technology and business, providing cognitive computing and cloud-based solutions that are changing the way the world works. IBM invests more than $5 billion each year in R&D and, for 24 consecutive years, has earned more U.S. patents than any other organization.

IBM is an international business. From our founding, IBM’s growth and success has depended on the ability to bring innovations to new markets. Today, more than two-thirds of IBM’s revenues come from outside our original home market here in the United States. Open markets and trade are essential to IBM’s success – and to the success of our U.S.-based employees and clients.

While our comments will focus on the importance of digital trade in a modernized NAFTA, IBM supports the negotiation of a modern, comprehensive agreement that also covers a broad range of issues, including market access for goods and services, technical barriers to trade, customs and trade facilitation, intellectual property rights, government procurement and regulatory cooperation, among other issues. Any modernization of the agreement should retain important provisions from the original agreement and build on these by incorporating new provisions to improve the agreement in line with negotiating objectives included in the Trade Priorities and Accountability Act (TPA).

Modernizing Trade Agreements for the 21st Century
Much has changed in the world since NAFTA was enacted over twenty years ago, and the stunning growth of the internet and e-commerce is perhaps the most striking development in international trade. In 1994 when the agreement took effect, less than one percent of the world’s population had access to the internet. Today, that figure is close to fifty percent, with over 3.5 billion internet users worldwide (1). Moreover, from 2005 to 2014, global data flows have grown by 45 times (2). The digital revolution has enabled American businesses large and small to compete in ways that no one could have expected when NAFTA was first negotiated. As the global economy continues to evolve in this new digital era, governments must modernize trade agreements to address new threats to open markets, innovation and growth.

Modernizing trade agreements in the 21st century will require a focus on a new type of trade – on digital trade – on the ability of businesses and individuals to deliver products and services online and to manage their global business operations by moving data freely around the world. IBM is encouraged by recent comments by Commerce Secretary Ross and U.S. Trade Representative Lighthizer underscoring the opportunity for digital trade in a modernized NAFTA. We fully support the administration’s recognition of the importance of digital trade for creating jobs and economic growth opportunities in the United States.

Digital trade is not just a priority for the tech sector. All businesses that operate globally across all industries – from banks, to airlines, to manufacturers – rely on the free flow of data. The ability to use the internet to reach customers in markets around the world is especially important for small- and medium-sized enterprises that would otherwise miss out on these opportunities. Digital trade enables start-ups and small businesses, including the IBM ecosystem partners around the world who are using the IBM Cloud to embed Watson’s cognitive computing capabilities in their products.

In order to ensure that U.S. companies of all sizes can compete in this new era, we encourage the administration to include strong digital trade provisions in a modernized NAFTA. This will ensure that data can flow freely around the world without burdensome requirements that limit opportunity and stifle innovation. It would prohibit governments from enacting arbitrary requirements for storing data locally, which can be particularly burdensome for small businesses. It also could enable broader cooperation on critical priorities like cybersecurity, and establish strong protections for software source code and other valuable intellectual property. Strong digital trade provisions in a modernized NAFTA will also set a new, high standard for future trade agreements.

Digital trade also supports good new jobs. At IBM, much of our employment and revenue growth in the United States is in new areas based on data-driven innovation, such as artificial intelligence, cognitive computing and cloud-based solutions. We have thousands of job openings throughout the U.S in the areas of cloud computing, cyber-security, mobile technologies, and many others. These jobs depend on the ability of IBM to collect, transfer, process and store data across borders to serve our clients around the world.

Given the enormous opportunities enabled by digital trade, IBM encourages the administration to use the E-Commerce Chapter of the Trans-Pacific Partnership (TPP) as a starting point for negotiating digital trade provisions for NAFTA. While the U.S. is no longer a party to TPP, the language in this chapter has already been approved by the United States, Canada and Mexico, and provides specific measures that would enhance the ability of American companies from across sectors to compete in the 21st century economy.

The Benefits of NAFTA
As the administration begins the process for modernizing NAFTA, it is important to reflect on the many positive aspects of the agreement – and how it has enabled our economy to grow across industries – from manufacturing, to agriculture, to services.

These are a few of the highlights what NAFTA has enabled for our economy:

  • Trade between our countries supports 14 million jobs in the United States (3).
  • Canadians and Mexicans purchased $445 billion of U.S. manufactured goods in 2016, generating $37,000 in export revenue for every American factory worker (4).
  • Under NAFTA, U.S. agricultural exports to Canada and Mexico have quadrupled from $8.9 billion in 1993 to $38 billion in 2015 (5).
  • U.S. farms and ranches supply nearly 60% of Canadian agricultural imports (6).
  • The U.S. services sector enjoys a significant trade surplus with both Canada ($27b) and Mexico ($9.6b) (7).
  • This is also the case when looking at the information and communications technology (ICT) industry. In 2015, the U.S. had an ICT services trade surplus of $635m with Canada, and a surplus of $826m with Mexico (8).
  • From 1999 to 2015, the United States quadrupled its bilateral services trade surplus with Canada and doubled that with Mexico (9).

In order to expand on this success in a modernized NAFTA, we encourage the administration to conduct negotiations trilaterally. Doing so will ensure that U.S. businesses and consumers are able to succeed in both markets.

Trade Promotion Authority
IBM is encouraged by the administration’s commitment to pursue the negotiating objectives established by Congress in the 2015 Trade Priorities and Accountability Act (TPA) as it seeks to modernize NAFTA. TPA provides an important framework for ensuring that any trade negotiation, and the deliberations that lead to their launch, are conducted with an appropriate level of engagement with Congress.

TPA also provides useful and specific negotiating objectives on a range of issues in order to ensure that the very best terms are pursued in the interests of the American economy. Regarding digital trade, TPA’s provisions seek to:

  • Ensure that current obligations, rules, disciplines, and commitments under the WTO and bilateral and regional trade agreements apply to digital trade in goods and services and to cross border data flows.
  • Ensure that electronically delivered goods and services receive no less favorable treatment under trade rules and commitments than like products delivered in physical form.
  • Ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local data storage or processing of data.
  • Where legitimate policy objectives require domestic regulations that affect digital trade in goods and services or cross-border data flows – obtain commitments that any such regulations are the least restrictive on trade, non-discriminatory, and transparent, and promoted an open market environment.

IBM strongly supported the inclusion of these negotiating objectives in TPA, and we continue to believe that these are important negotiating objectives as the United States seeks to modernize NAFTA.

Specific Negotiating Objectives for Modernizing NAFTA
While IBM supports the negotiation of a comprehensive trade agreement that covers the full range of trade issues covered in NAFTA and other U.S. agreements, we would like to highlight here a subset of those issues that are particularly important to IBM.

Digital Trade Objectives

  • Ensure the ability to transfer data across borders to conduct and manage business.
  • Prohibit parties from requiring local storage or processing of data as a condition of doing business in the country.
  • Ensure that companies do not have to share source code, trade secrets or other intellectual property as a condition of market access.
  • Prohibit governments from imposing customs duties on electronic transmissions, including content transmitted electronically.
  • Ensure that U.S.-origin digital products, including software, receive non-discriminatory treatment relative to domestic-origin digital products in the partner countries.Ensure that companies are not required to purchase and use local technology instead of technology of their own choosing.
  • Protect the use of encryption to meet consumer and business demand for product features that protect security and privacy while allowing law enforcement access to communications consistent with applicable law.

Other Objectives

  • Maintain full market access and national treatment commitments for IT services and expand liberalization in as many sectors as possible, including major IBM-client sectors such as financial and telecommunications services.
  • Ensure that relevant chapters covering intellectual property, trade facilitation, and regulatory cooperation are adopted, including any additions or improvements developed since NAFTA.
  • Ensure that Government Procurement is maintained as an important chapter in an updated NAFTA.
  • Ensure that robust market access commitments cover both existing services and new services that may emerge in the future. Innovative new services should be protected against future discrimination, and trade agreements should not become obsolete as markets evolve and technology advances. The United States must not accept broad carve-outs for “new” services; any negotiated exceptions must be specific and narrowly defined.
  • A modernized NAFTA should preserve the ability of U.S. companies to lead the world in developing software-enabled data analytics solutions that are powering innovations in artificial intelligence.  A modernized NAFTA should ensure that copyright laws are sufficiently flexible to permit commercial text and data mining of all lawfully accessible content.
  • Prohibit requirements that companies transfer, share or disclose algorithms or other intellectual property that form the basis for artificial intelligence systems.

Conclusion
IBM appreciates this opportunity to share its views on the goals for NAFTA modernization, and we look forward to working with the administration and Congress as the United States moves forward with negotiations to realize these goals.

Download IBM’s Comments (PDF, 85KB)

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Footnotes:
(1) – United Nations, International Telecommunications Union.  Time series of International ICT Data: http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx
(2) – McKinsey Global Institute: “Digital Globalization: The New Era of Global Flows.”  March 2016.
(3) – U.S. Chamber of Commerce: “The Facts on NAFTA: Assessing Two Decades of Gains in Trade, Growth, and Jobs.”  March 8, 2017.
(4) – U.S. CEO Letter to President Trump regarding NAFTA Modernization – dated May 25, 2017.  (paywall link: https://insidetrade.com/sites/insidetrade.com/files/documents/may2017/05252017%20CEO%20Letter%20to%20President%20Trump%20on%20NAFTA%20Modernization.pdf).
(5) – Ibid
(6) – U.S. Chamber of Commerce: “The Facts on NAFTA: Assessing Two Decades of Gains in Trade, Growth, and Jobs.”  March 8, 2017.
(7) – U.S. Department of Commerce, Bureau of Economic Analysis.  International Data: U.S. Trade in Services.  Release date: December 19, 2017
(8) – U.S. Department of Commerce, Bureau of Economic Analysis.  International Data: U.S. Trade in ICT and Potentially ICT-Enabled Services, by Country or Affiliation.  Release date: December 19, 2016.  Note: data only includes ICT services.
(9) – U.S. Department of Commerce, Bureau of Economic Analysis.  International Data: U.S. Trade in Services, by Type of Service and by Country or Affiliation.  Release date: December 19, 2016.

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Media Contact:
Adam R. Pratt
Ph: (202) 551-9625
arpratt@us.ibm.com

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