The United States-Mexico-Canada Agreement (USMCA) is more than just an updated version of the North American Free Trade Agreement. With the inclusion of a digital trade chapter, the deal sets a new standard for e-commerce that seems likely to proliferate in similar agreements around the world. Negotiators have touted the benefits of addressing modern forms of commerce, but the reality is that the USMCA’s digital trade chapter raises many concerns, locking in rules that will hamstring online policies for decades by restricting privacy safeguards and hampering efforts to establish new regulation in the digital environment.
Digital trade provisions are a relatively recent addition to the free-trade world, but they have quickly coalesced around a common approach. Starting with the Trans-Pacific Partnership (since renamed the Comprehensive and Progressive Agreement for Trans Pacific Partnership with the U.S. exit last year), e-commerce or digital trade chapters have cropped up in large agreements such as the USMCA and little-known ones such as the recent Singapore-Sri Lanka trade agreement.
The chapters invariably include foundational principles such as certainty in electronic contracting, the validity of electronic signatures, nondiscriminatory treatment of digital services, and restrictions on imposing customs duties on digital products transmitted electronically. So long as the provisions foster greater certainty for online trade, the chapters reflect well-established conventions and should be embraced.
The more problematic provisions, however, focus on the rules associated with data, where much of the value in digital trade lies. For example, the USMCA includes rules that restrict data localization policies that can be used to require companies to store personal information within the local jurisdiction. Jurisdictions concerned about lost privacy in the online environment have increasingly turned to data localization to ensure their local laws apply. These include the Canadian provinces of British Columbia and Nova Scotia, which have data localization requirements to keep sensitive health information at home that may be jeopardized by the agreement.
The digital trade chapter also bans restrictions on data transfers across borders. That means countries cannot follow the European model of data protection that uses data transfer restrictions as a way to ensure that the information enjoys adequate legal protections. In fact, with the European Union adopting even higher standard privacy rules earlier this year, countries could find themselves caught in a global privacy battle in which Europe demands limits on data transfers while the USMCA prohibits them.