Ed Brzytwa is the Director for Global Policy at the Information Technology Industry Council (ITI). The organization was founded in Chicago in 1916 as the National Association of Office Appliance Manufacturers. IBM was one of the two founding members. Both ITI and IBM have gone through a lot changes in the last 100 years, and both were represented on the business panel at the Global Business Dialogue's May 20 conference on "Pacific Arrangements."
Chris Padilla was there for IBM, and we expect to share some of his comments later this week.
ITI is a global association, with members headquartered in Japan, Korea, China, Taiwan, and India, although the United States is home to the majority of them. And they include a lot of famous names, from Amazon to Google and from IBM to Oracle.
Today's quote highlighted one of ITI's major concerns as it considers trade and commercial policy in the Asia-Pacific Region, namely data flows - the ability to move data from one place to another - and the threat posed to that ability by localization requirements. It is an issue that is squarely addressed in TPP, the Trans-Pacific Partnership Agreement, which is one of the reason ITI and its members are such strong supporters of TPP.
Early in his presentation, Mr. Brzytwa set out the basics, answering such questions such as a) What is data? and b) What is data localization?
Data Defined. Mr. Brzytwa defined data as digital products, examples being: information, television programs, movies, digital products, video conferencing and ... cat videos. Evidently they are in high demand and take up a lot of data. (This led to a lighthearted moment in the question-and-answer session, when
Bill Lane, recently retired from Caterpillar, said he was glad to learn that Cat videos are so popular.)
The logic is clear enough. If data flows are fundamental, so too, in a negative sense, are threats to data flows. One of the most significant threats to the free flow of data, Mr. Brzytwa said is the increasing use of data localization requirements.
"Data localization," he said,
"is ... a proliferating trend in the region." He then defined the phrase "data localization" as "requirements to store, manage, or route data locally, within the territory of a country." China has data localization requirements, he said, and Indonesia has been clear that it sees data localization as a useful instrument of industrial policy.
This is an area that TPP addresses directly. USTR, in their overview of TPP's e-commerce chapter, Chapter 14, notes that the agreement "includes guarantees that companies will not have to build expensive and unnecessarily redundant data centers in every market they seek to serve."
The ITC report on the Trans-Pacific Partnership Agreement makes several references to the issue. This one could hardly be clearer:
"Industry representatives note that the provisions enabling business to transfer data across borders and prohibiting TPP partner governments from introducing data localization requirements are likely to represent one of the most important advances for trade liberalization in TPP." (Page 336)
The Information Technology Industry Council - and indeed the hi-tech sector writ large - is making that point to decision makers wherever it can. A case in point is the letter that ITI and twelve other tech associations sent to the Presidential candidates on May 4. Those 13 associations and their members account for approximately 7 percent of U.S. GDP and roughly 6.7 million U.S. jobs. Understandably, their letter to the candidates dealt with a number of issues. Two very prominent ones were the importance of Congressional ratification of TPP and
guaranteeing that "data can flow across borders to enable new technology offerings like cloud computing and data analytics."And, as Mr. Brzytwa also pointed out, the U.S. tech sector is not alone in its concern about the downsides of data localization requirements. A paper published last month in the UK, for example, suggested that
localization requirements can undercut growth, possibly dropping GDP by 0.55 percent in China, by 0.23 in Indonesia, by 0.58 in Korea, and by 0.24 in Vietnam. As indicated in the notes below, this research was published jointly by the Centre for International Governance Innovation in London and by Chatham House.
We have chosen to focus primarily on Mr. Brzytwa's comments on data localization, but that was not the only issue he talked about. These were some of the others:
I
TA Expansion. This new, major agreement is set to enter into force on July 1. That was the good news in his good news/bad news run down of issues. It is an agreement affecting $1.3 trillion in annual trade. Part of the bad news was that China, the world's second largest economy and an important ITA partner, will be implementing many tariff cuts at a slower pace than other countries. Moreover, China has evidently been doing some diplomatic grumbling about the July 1 implementation. (Still, we expect that will go forward as planned.)
TPP and Other Agreements. For Mr. Brzytwa, TPP demonstrates clearly that trade agreements can improve the commercial environment for e-commerce and hi-tech companies. And there is promise in other agreements as well. Mr. Brzytwa favorably mentioned the e-commerce working group of the
Pacific Alliance, for example. The Alliance is a Pacific-oriented trade group consisting of Chile, Colombia, Mexico, and Peru, with Costa Rica in the process of joining.
But agreements differ. The 16 countries negotiating the
Regional Comprehensive Economic Partnership or RCEP are not planning to include an e-commerce chapter. Against that background and looking ahead someday to a Free Trade Area of Asia Pacific, Mr. Brzytwa said,
"You can't average TPP and RCEP to get an FTAAP." Rather, he said, "The FTAAP will be based on an on-going regional undertaking, and that probably will be the TPP at some point in the future."
