How The USMCA Affects Digital Trade

The U.S.-Mexico-Canada Agreement (USMCA), the proposed replacement of the North American Free Trade Agreement (NAFTA), now awaits submission to Congress. While the USMCA is similar to NAFTA in several ways, one difference is that USMCA includes a chapter on digital trade, a now-common feature of trade deals. The USMCA’s section on digital trade is largely lifted from the Trans-Pacific Partnership (TPP), but it lacks certain carve-outs that were present in the TPP. In the future, these exemptions could become an important area of tension in international privacy law, especially in Europe where regulators require in some instances the very thing that the USMCA bans.

Standards for Digital Trade

Digital trade chapters are a new addition to trade agreements, but they typically include provisions based on several specific principles. Most limit customs duties of digital products, establish a legal framework for electronic transactions, include provisions to combat fraud, and seek to expand access to government information. In this regard, the USMCA isn’t that different than the TPP.

More controversially, trade agreements also tend to include sections meant to break down data localization laws, which require that certain kinds of data remain within a country’s borders. Here, the USMCA is like the TPP. For example, Article 14.11(2) under the TPP states,

Each Party shall allow the cross-border transfer of information by electronic means, including personal information, when this activity is for the conduct of the business of a covered person.

The USMCA goes further, making this provision a strong negative statement. It reads,

No Party shall prohibit or restrict the cross-border transfer of information, including personal information, by electronic means if this activity is for the conduct of the business of a covered person.

To give some teeth to these broad ideas, the texts of the TPP and the USMCA include targeted sections on computer facilities. Indeed, both Article 14.13(2) in the TPP and the USMCA’s Article 19.12 read the same:

No Party shall require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in that territory.