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22–164 2017

EXPANDING U.S. DIGITAL TRADE AND 

ELIMINATING BARRIERS TO U.S. DIGITAL EXPORTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TRADE 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

JULY 13, 2016 

Serial No. 114–TR03 

Printed for the use of the Committee on Ways and Means 

( 

ii 

COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

TOM RICE, South Carolina 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

DAVID STEWART, Staff Director 

NICK GWYN, Minority Chief of Staff 

SUBCOMMITTEE ON TRADE 

DAVID G. REICHERT, Washington, Chairman 

DEVIN NUNES, California 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

CHARLES W. BOUSTANY, JR., Louisiana 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

PAT MEEHAN, Pennsylvania 

CHARLES B. RANGEL, New York 

RICHARD E. NEAL, Massachusetts 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

LLOYD DOGGETT, Texas 

iii 

C O N T E N T S 

Page 

Advisory of July 13, 2016 announcing the hearing ............................................... 2 

WITNESSES 

Usman Ahmed, Head of Global Public Policy, PayPal Inc. .................................. 61 

Robert Atkinson, President, Information Technology and Innovation Foundation ........................................................................................................................ 6 

Michael Beckerman, President and CEO, Internet Association .......................... 38 

Christopher Padilla, Vice President—Government and Regulatory Affairs, 

IBM Corporation .................................................................................................. 31 

Kavita Shukla, Founder and CEO, Fenugreen LLC ............................................. 55 

SUBMISSIONS FOR THE RECORD 

Ebay .......................................................................................................................... 91 

Etsy ........................................................................................................................... 95 

Jennifer Topolski ..................................................................................................... 100 

Public Knowledge ..................................................................................................... 102 

(1) 

EXPANDING U.S. DIGITAL TRADE AND ELIMINATING BARRIERS TO U.S. DIGITAL EXPORTS 

WEDNESDAY, JULY 13, 2016 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON TRADE, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:04 a.m., in Room 

1100, Longworth House Office Building, the Honorable Dave 

Reichert [Chairman of the Subcommittee] presiding. 

[The advisory of the hearing follows:] 

2 


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(fj) 

WAYS AND MEANS 

CHAIRMAN KEVIN BRADY 

Chairman Reichert Announces Hearing on Expanding U.S. Digital Trade and 

Eliminating Baniers to U.S. Digital Exports 

House Ways and Means Trade Subcommittee Chairman Dave Reichert (R-W A) announced today that 

the Subcommittee will hold a hearing on "Expanding U.S. Digital Trade and Eliminating Barriers to 

U.S. Digital Exports." The hearing will focus on how high-standard and ambitious digital trade 

provisions in U.S. ttade agreements can, if thoroughly implemented and fully enforced, open markets to 

U.S. exports and benefit U.S. businesses of all sizes that rely on digital trade to enable sales of goods 

and services. The hearing will take place on Wednesday, July 13, 2016, in room 1100 of the 

Longworth House Office Building, beginning at 10:00 A.M. 

In view of the limited time to hear witnesses, oral testimony at this hearing will be from invited 

witnesses only. However, any individual or organization may submit a written statement for 

consideration by the Committee and for inclusion in the printed record of the hearing. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit written comments for the hearing 

record must follow the appropriate link on the hearing page of the Committee website and complete the 

informational forms. From the Committee homepage, http://waysandmeans.house.gov, select 

"Hearings." Select the hearing for which you would like to make a submission, and click on the link 

entitled, "Click here to provide a submission for the record." Once you have followed the online 

instructions, submit all requested information. ATTACH your submission as a Word document, in 

compliance with the formatting requirements listed below, by the close of business on Wednesday, 

July 27, 2016. For questions, or if you encounter technical problems, please call (202) 225 -3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, 

submissions will be included in the record according to the discretion of the Committee. The 

Committee will not alter the content of yom submission, but we reserve the right to format it according 

to our guidelines. Any submission provided to the Committee by a witness, any materials submitted for 

the printed record, and any written comments in response to a request for written comments must 

conform to the guidelines listed below. Any submission not in compliance with these guidelines will 

not be printed, but will be maintained in the Committee file s for review and use by the Committee. 
3 

f 

Chairman REICHERT. The Committee will come to order. Good 

morning. The Subcommittee will come to order, and welcome to the 

Ways and Means Trade Subcommittee hearing on Expanding U.S. 

Digital Trade and Eliminating Barriers to U.S. Digital Exports. Before hearing from our witnesses, I would like to make a few points. 

Shocking. Huh? Politicians wanting to make a few points. We will 

all get an opportunity to do that. 

The United States is far and away the world’s leading exporter 

of digital goods and services. This is a great position for the U.S. 

to be in because digital trade is growing at a rapid pace. And this 

means more jobs and more opportunities for Americans across the 

country. 

Our country is succeeding in digital trade because of the innovative spirit of the American people and American companies of all 

sizes. Our companies lead the world in creating digital products 

and content as well as in data storage and analysis. In fact, United 

States based Web sites represent more than half of the top 100 

Web sites in every region of the world, except Europe. 

In order to remain the global leader of digital trade, we must 

maintain access to the world’s expanding digital markets. Digital 

trade, including the use of online platforms data flows, benefits 

both high tech companies and traditional companies in a wide 

range of industries like manufacturers, retailers, and service providers. These businesses depend on digital platforms to export 

goods and services. Small businesses, in particular, benefit from 

the opportunities that digital trade provides through global digital 

platforms, including e-commerce Web sites such as Amazon, search 

engines such as Microsoft Bing, and payment systems such as 

PayPal. And when our companies are successful because of digital 

trade, they grow and create more jobs here at home. 

We must build on the great success of the United States companies. We need to do more to tear down barriers to U.S. digital exports so we can allow our job creators to grow. For example, too 

many of our trading partners have imposed or threatened requiring 

the storage of data in country, which can make it impractical for 


22164.002
4 

U.S. companies in various industries to serve or even obtain customers in those markets. 

Arbitrary blocking of cross-border Internet traffic, which effectively prohibits digital trade by U.S. companies, is another longterm problem in many countries throughout the world. China is a 

particularly extreme example. In addition, inadequate protection of 

intellectual property rights, such as digital piracy of media or software, hurts our innovative companies. 

Trade agreements can be an effective tool to lower these and 

other barriers in open markets for America’s digital products. 

Many of the problems our digital exporters now face arose after our 

existing trade agreements were negotiated years ago. And that is 

why Congress set forth important new and expanded principal negotiating objectives relevant to digital trade in goods and services 

and cross-border data flows in the bipartisan Congressional Trade 

Priorities and Accountability Act that became law last year. That 

was a mouthful. 

Our future trade initiatives must reflect these priorities. In that 

regard, I believe TPP holds great promise to tear down barriers 

hurting digital trade. It would prohibit tariffs on digital goods, including software, video, and music. It would facilitate trade of both 

digital and physical goods by encouraging paperless trading and requiring the recognition of electronic signatures. 

TPP also includes commitments to ensure the free flow of global 

information and data at the heart of digital economy. It would prohibit data localization measures, but I share the disappointment of 

many Members of Congress and the Financial Services Committee 

that financial services were excluded from this localization commitment. 

I believe that the administration has heard our concerns, and I 

appreciate the administration is working constructively to address 

this issue. I welcome our continued work to create a clear and enforceable ban on localization requirements in this sector for all TPP 

countries. Resolving this issue and other outstanding issues, as 

well as developing implementation plans to assure that TPP will be 

fully implemented and enforced, is essential to getting congressional support for TPP. 

Finally, the negotiation of a trade agreement with the EU and 

the trade and services agreement with 22 parties both hold great 

promise for digital exports as long as they are comprehensive, highstandard agreements that address the barriers faced by digital exporters and do not exclude import sectors such as financial services. 

I will now yield to Mr. Rangel for his opening statement. 

Mr. RANGEL. Thank you, Mr. Chairman, for calling this hearing. 

And I welcome all of our witnesses and look forward to hearing 

your testimony. 

Gone are the days where trade simply meant reducing tariffs and 

limiting quotas for imported products. Trade policy now addresses 

much more difficult issues, as one can see from the length of modern trade agreements. One of our biggest areas of expansion have 

been on issues related to digital trade. U.S. trade policy now addresses issues such as cross-border data flows, enforced localization 

5 

policies that some countries have implemented to force companies 

to store data within their own borders. These digital trade policies 

have been endorsed by a wide range of stakeholders. 

Not only have these provisions been applauded because of their 

commercial significance, but many NGOs, think tanks, and academies have also praised the revision because of the impact of maintaining a free and open Internet. This is one of the few areas in 

international trade policy where one can find very, very broad 

agreement. But we can’t lose sight of the bigger picture. The public 

debate on trade today touches on a much broader range of issues 

and are much bigger and more controversial issues than the digital 

trade issues we will be discussing today. 

These issues range from who actually benefits from trade in our 

trade agreements, and to whether we have the infrastructure and 

training programs in place to take advantage of the opportunities 

that may arise as the result of our trade agreements. We need to 

be much more focused than we have been on addressing these bigger picture issues if we want to begin and establish a consensus 

in bipartisanship on trade. 

Mr. Chairman, there are some political questions as to whether 

or not the Congress is going to be dealing with the question of TPP. 

There is some political questions as to how many votes we will 

have. There are serious questions as to people being afraid that 

they are going to lose jobs. One way, in my opinion, that we can 

eliminate these fears would be to tie in the questions that we are 

raising today, and that is technology. Nobody can challenge the fact 

that, with TPP, we are going to have to have a workforce that is 

extremely talented in math, science, and technology. 

And in addition to that, the greatest trade agreement in the 

world cannot be effective without a strong infrastructure. The Congress refuses even to discuss these issues. It would seem to me that 

if the President and the Congress could find some way to bring 

these issues together where the person on the street may not see 

an opportunity for him or herself, but certainly for their children 

to know that there will be jobs in infrastructure, the kids will be 

educated to meet the needs of the future, I think that in this administration we can get something done. Nevertheless, this is such 

an important part of a trade agreement that we don’t discuss. And 

I welcome the opportunity to listen to the witnesses. 

And I yield back the balance of my time. 

Chairman REICHERT. Thank you, Mr. Rangel. And we would 

agree, I think, on both sides of the aisle that trade agreements are 

normally a difficult process for us to work through. We want to get 

it right because it is about creating jobs across this country and 

having the ability to sell our products across the globe. And I do 

think you are correct in recognizing the importance of a highly educated force in our country and preparing them for especially the 

new jobs that will be supplied in the area of high tech, and especially as it relates to technology and trade. 

And that is really the purpose of today’s hearing, is to really expose and educate those who may not know how the world works 

today regarding technology and trade, and the benefits that it provides to Americans and jobs and how we must begin to prepare to 

enter in that sort of a market. So today, we are joined by five witVerDate Sep 11 2014 23:38 Mar 02, 2017 Jkt 022164 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22164.XXX 22164
6 

nesses who will help us understand this issue a lot more. We will 

have lots of questions for you after your testimony. 

The first witness is Mr. Robert Atkinson, president of Information Technology and Innovation Foundation. Our second witness is 

Mr. Christopher Padilla, vice president of Government and Regulatory Affairs of IBM Corporation. Our third witness is Mr. Michael 

Beckerman, president and CEO of Internet Association. Our fourth 

witness is Ms. Kavita Shukla, cofounder and CEO of Fenugreen. 

Finally, our fifth witness is Mr. Usman Ahmed, head of global public policy at PayPal. 

Before recognizing our first witness, let me note that our time is 

limited. So please limit your testimony to 5 minutes, and a reminder to members to keep their questioning to 5 minutes. 

Mr. Atkinson, you are recognized for your 5-minute statement. 

STATEMENT OF ROBERT ATKINSON, PRESIDENT, 

INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION 

Mr. ATKINSON. Thank you, Chairman Reichert, Ranking Member Rangel, and Members of the Committee. It is a pleasure to be 

here today to talk to you about this important issue. 

I would like to make three main points. The first point is that 

as information technology has improved over the last decade, it has 

become increasingly easy for companies to share data across borders. And not just easy, but necessary. As we have global supply 

chains, and as U.S. firms, even big and small become more global, 

they need to be able to move this data across borders. 

Companies that are doing this, though, as the chairman mentioned, are not just the high tech companies, some of who are on 

this panel, but firms in a wide array of industries: Agriculture, 

mining, retailing, banking. For example, consumer products companies like Proctor and Gamble, machinery companies like Caterpillar, retailers like Walmart, aerospace firms like Boeing, automobile manufacturers like Ford, and other manufacturers like GE 

for their aircraft engines, wind turbines, and industrial equipment, 

all of these companies rely on the ability to move data across borders for their competitive success. 

Unfortunately, though, dozens of countries now have put in place 

barriers and prohibitions that limit the ability to move data across 

borders, china being perhaps one of the worst examples. They, for 

example, prohibit firms from processing or storing offshore financial and credit data on Chinese citizens. Malaysia’s Personal Data 

Protection Act requires that all data on Malaysians has to be 

stored on local servers. And South Korea has the same kind of policy. And these are just a few of the restrictions. Increasingly, we 

are seeing more and more countries adopt these policies, either because they think they are going to get jobs and protect and defend 

their domestic companies, or misguided orientation beliefs on privacy. 

This hurts the U.S. economy in three main ways. One is that 

data localization by definition means that economic activity that 

could be in the U.S. is now going to be overseas. You are not going 

to have a data center here if you have to put one in Brazil or Vietnam. 

7 

Secondly, these cross-border data restrictions increase costs and 

limit innovation for U.S. firms. U.S. firms use this data to figure 

out new ways to improve their products and services. They use this 

data to cut costs. And if they can’t do that, there will be a problem. 

And third, if they restrict U.S. firms from participating in these 

foreign markets, they are going to lose market share to these companies who are favored by the domestic countries. 

And I think most importantly is there is really no policy justification for data nationalism. Some countries are just, frankly, naked 

mercantilists. They just do this because they think they can and 

they want the jobs. Other countries, either they say or they believe 

that this is necessary for privacy. But it really, fundamentally, as 

we have shown in work, there is really no advantage from a privacy or commercial security perspective of keeping data in the 

country. 

To use an example, if a foreign company is in the U.S. providing 

healthcare services, they can’t escape the requirements of HIPAA 

by storing the data somewhere else. They are subject to U.S. law. 

And anytime a U.S. company is in a foreign country doing business, they are subject to their privacy laws and their security laws. 

Where they put the data is irrelevant. It just has no effect. 

In fact, you could argue that the ability to store data in the best 

data centers in the world, the most secure data centers in the 

world, is actually more privacy protective than having to put it in 

every little data center in every country in the world. That is why 

I think the decision by the administration to exempt the financial 

sector from NTPP—from the relatively strong data localization prohibitions in TPP was ill advised. This rule which was at the insistence of U.S. financial regulators essentially sent a message that 

said something special about financial data. It is so important that 

you have to keep it local. In other words, it sent a message that 

moving data across borders was risky. And as we have shown, 

there really was no reason for that provision. 

There are already provisions in a number of different trade 

agreements and other provisions that would have let financial regulators get access to that data. To their credit, USTR is attempting 

to fix that and has indicated that they would not put it in future 

trade agreements. So I think they deserve credit for the fix. 

Lastly, this comes—what do we do in the future? I think, first 

of all, any new trade agreement that U.S. is engaged in shouldn’t 

have that provision in it. And in addition, we should make sure 

that any new agreements, TiSA or TTP, and ideally, frankly, a new 

multilateral data services agreement in the WTO should ensure 

that there are strong prohibitions against data nationalism. 

And I will just close by saying with—Congressman Rangel’s point 

about the loss of faith in trade in the U.S., and we see that in the 

current politics today. In our view, one of the reasons there is a 

loss of faith is because of other countries manipulating the trading 

system and, frankly, cheating and hurting U.S. companies and U.S. 

jobs. And I think that is why making sure we have these very 

strong prohibitions against data localization, data nationalization 

that are in the TPP and making sure that they extend to other 

agreements is going to be important, not just to help U.S. companies, but to restore faith in the trading system. 

8 

Thank you for having me. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Atkinson follows:] 


22164.003
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22164.004

The Information Technology and Innovation Foundation (ITIF) appreciates the House Ways and Means 

Trade Subcommittee's invitation to testify regarding the importance of digital trade to the U .S. and global 

economy and the need to secure trade rules that ensure both fair competition in global digital trade and the 

seamless movement of data and information across international borders. 

ITIF is a nonpartisan think tank whose mission is to formulate and promote public policies to advance 

technological innovation and productivity internationally, in Washington, and in the states. Recognizing the 

vital role of technology in ensuring prosperity, ITIF focuses on innovation, productivity, and digital economy 

issues. We have long been involved in the digital trade debate, advocating for policies which support the free 

flow of data across borders as essential to global trade and commerce. 

Data and Digital Trade as the Key Drivers of the Modern Global Economy 

Data and digitalization are increasingly the driving forces of innovation and growth in the modern globa l 

economy. For example, TEKES (Finland's Technology and Innovation Agency) recently estimated that, by 

2025, fully half of all value generated in the global economy will be created digitally. Similarly, a report 

released in March 2016 by the McKinsey Global Institute finds that the global value of international data 

flows in 20 15-$2.8 trillion-exceeded the value of global merchandise trade for the first time. 1 The 

McKinsey report further estimates that almost one-quarter, or 22 percent, of global economic output can be 

attributed directly to the digital economy and notes that the application of digital technologies-such as 

cloud computing, data analytics, and the Internet of Things-will increase global GOP by $2 trillion by 

2020. 2 And, as ITIF has shown, a wide array of industries, from manufacturing to mining to retail and 

financial services, depend on cross-border data flows. 3 

The contribution of digital technologies to the modern global economy is an extension of the role of 

information technology (IT) on growth. For example, ITIF has estimated that, all by itself, the commercial 

activity that is concentrated under the Internet's ".com" top-level domain will contribute $3.8 trillion 

annually to the globa l economy by 2020 4 And the McKinsey Global Institute has estimated that, for 13 of 

the world's largest economies between 2007 and 201 1, the Internet alone accounted for 21 percent of 

aggregate GOP growth. ' 

The Un ited States holds a distinct leadership role in the fast-growing data economy owing to its role as a 

pioneering innovator and ea rly adopter of IT, coupled with an Internet regulatory regime, particularly a light 

touch for privacy, which enables innovation. As of2010, U.S. firms held a 26 percent share of the global IT 

industry and were the world's largest producers of IT goods and services. 

6 Of the top 20 enterprise cloud 

computing service providers in the world, 17 are headquartered in the Un ited States. 7 Of the top 10 Internet 

firms, 7 are headquartered in the Un ited States. 8 The digitally enabled services that these firms provide have 

become a key growth engine for the U.S. economy, with exports reaching $356 billion in 2011, up from 

2 
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$282 billion just four years earlier. 9 The United States exports over $162 billion worth of digital services to 

Europe annually. 

Moreover, it is increasingly the case that many of the benefits from information technology come from 

creating value and insights from data, often in real-time. Virtually every sector of the U.S. economy benefits 

from the data revolution; the applications for data processing and analytics are quite large. And this value will 

only increase as the public and private sectors alike become more data-driven. 1° For example, the McKinsey 

Global Institute estimates that making open data available for public use, particularly government data, would 

unlock up to $5 trillion in global economic value annually across just seven sectors, ranging from education to 

consumer finance. 11 In the United States, the use of big data in health care can save $45 0 billion per year. 12 

Industry forecasters estimate that, by 2025, the Internet of Things will have an economic impact of up to 

$ 11.1 trillion per year. 13 And for the global public sector, the Internet of Things is expected to create $4.6 

trillion in value by 2022. 14 Even Europe could grow more quickly if it more fully embraced data and the 

digital revolution. 15 

Why Free Trade in Data is Vital 

A key reality of the global digital economy is that a significant share of data needs to move across borders. It is 

not unusual, for example, for Internet traffic to go through multiple different intermediaries in multiple 

nations. To paraphrase cyberspace advocate John Perry Barlow, who once said "information wants to be free, " 

today, "information wants to be global. " fu the Organization for Economic Cooperation and Development 

(OECD) noted in a recent report on the data economy: 

The data ecosystem involves cross-border data flows due to the activities of key global actors and 

the global distribution of technologies and resources used for value creation. In particular, ICT 

infrastructures used to perform data analytics, including the data centers and software, will rarely 

be restricted to a single country, but will be distributed around the globe to take advantage of 

several factors; these can include local work load, the environment (e.g., temperature and sun 

light), and skills and labor supply (and costs). Moreover, many data-driven services developed by 

entrepreneurs "stand on the shoulders of giants" who have made their innovative services 

(including their data) available via application programming interfaces (AP!s), many of which 

are located in foreign countries. 16 

Indeed, the growing extent and value of cross-border data flows is reflected in the fact that the data-carrying 

capacity of transatlantic submarine cables rose at an average annual rate of 19 percent between 2008 and 

2012. 17 This is why-absent policy-created "data protectionism"-digital trade and cross-border data flows 

are expected to continue to grow much faster than the overall rate of global trade. 

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As a result, the abili ty to move data across borders has become a critical component of value creation for 

organizations in the United States and other countries around the world. As the OECD states, "the free flow 

of information and data is not on ly a condition for information and knowledge exchange, but a vital 

condition for the globally distributed data ecosystem as it enables access to global value chains and markets." 18 

In fact, fully half of all global trade in services now depends on access to cross-border data flows. 19 And, as 

noted, digitally enabled services have become a key growth engine for the U .S. economy, with exports 

reaching $356 billion in 20 11 , up from $282 billion just four years earlier. 20 

This is why the U.S. International Trade Commission (lT C) estimates that digital trade increased annual 

U.S. GOP by between $517 and $7 10 billion in 20 11 (3.4 to 4.8 percent). 21 The lTC further estimates that 

digital trade increased average wages and helped create 2.4 million American jobs in 201 1. U .S. firms in 

digitally intensive industries sold $935.2 billion in products and services online in 2012, including $222.9 

billion in exports. Similarly, based on 2014 estimates, the U .S. International Trade Commission estimates 

that decreasing barriers to cross-border data flows would increase U.S. GOP by 0.1 to 0.3 percent. 22 And even 

though the ITC 's analysis shows important benefits from digital trade, those benefits are likely understated. 

This is because the report limited its analysis to "digitally intensive" sectors, which means that its numbers 

exclude contributions from firms in industries that only use digital trade as a smaller part of their business. 

The lTC also found digital trade to be crucial for digitally intensive small- and medium-sized enterprises 

(SM&), which sold $227 billion in products and services on line in 20 12. Indeed, small firms in a wide array 

of sectors depend on digital trade. For example, in the $120 billion U.S. app industry, small companies and 

startups account for 82 percent of the top-grossing applications. Consumers throughout the world use these 

apps and any interruption in cross-border data flows will negatively affect both firms' revenues and customers' 

experiences. 

Free trade in data is important not just to technology firms, but also to traditional industries, such as 

automobile manufacturers, mining compan ies, banks, airlines, hospitals, and grocery store chains-all of 

which depend upon the abili ty to move data across borders or analyze it in real-time as a fundamental enabler 

of their supply chains, operations, value propositions, and business models. Indeed, among the thousands of 

U.S. firms that have operated under the erstwhile U.S.-EU Safe Harbor Agreement, 5 1 percent did so in 

order to process data on European employees-for example, transferring the personnel files of overseas 

workers to the United States for human resource purposes-and most of these firms are in traditional 

industries. 23 In fact, the McKinsey G lobal Institute estimates that about 75 percent of the value added by data 

flows on the Internet accrues to "traditional" industries, especially via increases in global growth. 24 

There are numerous examples of U .S. firms, large and small alike, benefiting from cross-border data flows. 

For example, Ford Motor Company gathers data from over four million cars with in-car sensors and remote 

4 
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applications management software. 

25 All data is analyzed in real-time, giving engineers valuable information 

to identify and solve issues, know how the car responds in different road and weather conditions, and be 

aware of any other forces affecting the vehicle. This data is returned back to the factory for real-time analysis 

and then returned to the driver via a mobile app. Like other car companies, Ford believes the data belongs to 

the owner and that Ford serves as customers' "data steward." For internal purposes, performance data is deidentified and analyzed to track potential performance and warranty issues. 

26 Ford uses a U.S. cloud service 

provider to host this data. 27 

Likewise, Caterpillar, a leading manufacturer of machinery and engines used in industries, established its fleet 

management solution to increase its customers' performance and cut costs. Sensor-enabled machines transmit 

performance and terrain information to Caterpillar's Data Innovation Lab in Champaign, Illinois where data 

can be analyzed, enabling Caterpillar and its customers to remotely monitor assets across their fleets in real 

time. This also enables Caterpillar and its customers to diagnose the cause of performance issues when things 

go wrong. For example, truck data at one worksite showed Caterpillar that some operators were not using the 

correct brake procedures on a haul road with a very steep incline. Retraining the operators saved the customer 

about $ 12,000 on the project, and company-wide driver incidents decreased by 75 percent. Cross-border data 

flow restrictions could limit Caterp illar's ability to offer these services in certain markets, such as those that 

prevent the movement ofGPS data across borders. 28 

When nations impose restrictions on data flows, the U .S. economy is harmed in at least three ways. First, 

policies such as requiring localization of data or computing infrastructure will move activity from the United 

States to these nations, reducing jobs and investment here and raising costs for U.S. firms. Second, crossborder data restrictions will increase costs and limit innovation for U .S. firms. Third, if the restrictions 

preclude U.S. firms from participating in foreign markets, then U .S. firms will lose global market share to 

competitors that are based in those protected markets. 

Some advocates assert that the U.S. economy can thrive simply by having a healthy small business, domesticserving sector and that policymakers can and should be indifferent to the competitive fate of U .S. 

multinational, corporations. But this is profoundly wrong. Losing global market share because of digital 

protectionism-regardless of whether it is in information industries or "traditional" industries-harms not 

just U .S. multinationals, but also the overall U.S. economy and U.S. workers. A large body of scholarly 

literature proves this point. Dartmouth's Matthew J. Slaughter finds that employment and capital investment 

in U.S. parents and foreign affiliates rise simultaneously. 29 In a study of U .S. manufacturing multinationals, 

Desai eta!., find that a 10 percent greater foreign investment is associated with 2.6 percent greater domestic 

investment. 30 Another study of U.S. multinational corporation services firms found that affi liate sales abroad 

increase U .S. employment by promoting intra-firm exports from parent firms to foreign affi liates. 31 In short, 

when U .S. multinationals firms, regardless of size, are able to expand market share overseas, it creates real 
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economic benefits and jobs here at home. These jobs run the gamut, including sales, marketing, management, 

and engineering, computer science, and technical jobs. And this matters because, as ITIF has shown, IT 

workers earned 74 percent more than the average American worker in 2011 ($78,584 versus $45,230). In 

201 1, the IT industry contributed about $650 billion to the U.S. economy, or 4.3 percent of GOP, up from 

3.4 percent in the early 1990s. 32 Finally, digital trade does not just benefit large companies such as Amazon, 

Ford, GE, IBM, or P&G. Small- and medium-sized U.S. enterprises account for one-quarter of digital trade 

sales and fully one-third of digital trade purchases. 33 

Free trade in data is important not just for businesses and their workers, but for all Americans. Imagine if data 

had a much harder time crossing borders. Americans traveling overseas would not be able to use their credit 

cards or cell phones, because both require cross-border data flows. In fact, without cross-border data flows, 

people would not be able to fly overseas at all, because airlines need to transmit data on passenger manifests 

and flight operations and governments need to transfer passport data on passengers. People would have a hard 

time shipping packages overseas. If individuals get sick while traveling, there would be no way to access their 

medical records, much less receive remote medical expertise or diagnostic tests, if medical data are not allowed 

to cross borders. W ithout data flows, officials can't pre-position travelers' personal information to speed 

customs and border crossings. And compan ies would not be able to provide international service or warranty 

protection over the productive life of a product. For example, it would disrupt the increasingly common 

practice in which automakers remotely upgrade the software in motorists' vehicles. 

By contrast, the free flow of data can improve the quality of goods and services, including public goods. For 

example, cross-border data flows can be an essential component of pandemic disease management and 

control. The free flow of data is also a key to providing remote diagnostics with medical imaging systems, as 

there can be personally identifiable information in these systems. Likewise, farmers can remotely receive 

personalized weather feeds that are based on big data analytics (e.g., a mash up of data on weather forecast and 

history, soil moisture, soil content, river fl ows, etc.), but this requires data to be able to flow across national 

borders. 

As a case study, consider how cross-border data fl ows can impact quality and safety in the airline industry. 

Aircraft manufacturer Boeing, headquartered in Chicago, Illinois, relies heavily on data transmitted from 

planes operating around the world to improve safety and reduce flight delays and cancellations. Boeing has 

created a system called Airplane Health Management that processes the large amounts of data that its 

airplanes generate and transmit in real time while they are in flight. 34 For example, a Boeing 737 engine 

produces 20 terabytes of data per hour. 35 Commercial airlines that operate Boeing aircraft, such as United 

Airlines, can monitor this data in real time and proactively dispatch maintenance crews to await an airplane's 

arrival and quickly address any problems that may have arisen during a flight. 36 Since the very purpose of 

airplanes is to traverse borders, the success of such a system hinges on Boeing's abili ty to quickly and easily 

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transmit data from its planes to its airline customers across the globe.

37 Likewise, when General Electric (GE) 

Aircraft Engines develops engine maintenance and service plans for its airlin e customers, it customizes the 

entire package based upon data showing the individual service history (e.g., hours flown, weather conditions 

flown in , etc.) of each of the jet engines in the airline customers' entire fleet. 

Another reason the digital trade linkage between products and services is so important is that the increasing 

phenomenon of"servicization" means that products are increasingly being sold as services. For example, GE 

no longer sells individual radiological equipment (e.g., MRI or X-Ray machines) to hospitals; rather it sells 

radiological services, whereby GE takes over for exam pie a hospital's en tire suite of radiological assets, 

installing the devices with remote-monitoring capabilities that allow G E to know if they are operating and 

functioning properly or to diagnose various failure models. In other words, GE is selling its products as a 

package of bundled services, with the quality ofGE's service offering being dependent on the digital data 

stream produced by its devices. (In a like manner, G E's Aircraft Engines division no longer sells airlines 

individual jet engines; it sells them "guaranteed thrust." And Johnson Controls no longer sells individual 

heating or air condition ing units; it sells to customers a service-"chilled air. ") The point is that these 

"servicized" business models account for an increasingly large share of the economy-and digital trade-and 

they depend upon the free flow of unfettered data across borders; any trade restrictions that impede the free 

flow of such information imperil these digital-data-predicated business models. 

The free flow of data will also enhance overall "data innovation," which is playing a key role in improving the 

lives of Americans. A case in point is medical research. Diseases do not stop at national borders, and the data 

that are needed to help find cures need to cross borders, too. Powerful data analytics applied to bigger global 

data sets can help speed the development of cures. (Organ izations can "de-identify" data so that they do not 

release personally identifiable information.) The rarer the disease, the more important it is to collect data on a 

global basis, since data from individual countries may not create a large enough database to reveal patterns. 

Unnecessary restrictions on data flows will make it harder for health-care providers to save lives. 

Finally, it is important to note that support for free trade in data does not have to mean support for the free 

flow of all data, regardless of its legal status. Just as it is not a violation of free trade principles to block trade in 

banned products, such as elephant ivory or rhinoceros products, it is also not a violation of free trade 

principles to oppose digital trade in illegal digital goods, such as child pornography, email spam, Internet 

malware, and pirated digital content. Numerous countries, including the United Kingdom, Denmark, 

Greece, Italy, Portugal, and Singapore, have blocked websites that trade in pirated digital content (either 

using their domain name or network address), thereby preventing that data from flowing into a country. 

38 In 

fact, according to the International Federation of the Phonographic Industry, the global trade association for 

the music industry, "[Internet service providers] in 19 countries have been ordered to block access to more 

than 480 copyright infringing websites." 39 This is clearly not digital protectionism. Rather, it is indicative of 

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how the global trading system was intended to work, enabling trade in legal goods, services, and data, and 

prohibiting trade in illegal goods, services, and data. Moreover, just as taking a stand against trade in products 

like ivory or illegal drugs does not weaken America's intellectual leadership in promoting free trade, taking a 

stand against trade in illegal digital goods will not weaken our case in promoting free trade in data. 

The Barriers to Global Digital Trade 

Data for legal goods and service will naturally flow across borders when it needs to, unless nations erect digital 

barriers that impede it. Unfortunately, despite the vast benefits to companies, workers, consumers, and 

economies that arise from the ability to easily share data across borders, dozens of countries-both developed 

and developing alike-have erected a wide slate of barriers to digital trade. 40 The nations that have enacted 

such barriers proffer three main types of "justifications" for these policies: privacy and security concerns, 

national security and law enforcement concerns, and aspirations for domestic economic growth. In almost all 

cases, though, more than one motivation plays a role. But as the following discussion elaborates, none of these 

justifications validate the digital trade barriers all too many countries are increasingly erecting. 

First, some nations have raised privacy concerns, contending that data, if transferred overseas, is somehow 

inherently less secure. But as ITIF has demonstrated in a detailed report, The False Promise of Data 

Nationalism, those who argue that free trade provisions for data abrogate national privacy rules, and therefore 

shou ld not be included in trade agreements, overlook the reality that data does not need to be stored locally to 

be secure or to maintain commercial privacy protections. 41 For example, Europe's concerns about data trade 

stem in large part from its desire to protect citizens' privacy. However, effectively addressing privacy concerns 

shou ld be the easiest of the three motivations to address. As long as the company involved has legal nexus in a 

nation, it is subject to the privacy and cybersecurity laws and regulations of that nation-moving data 

overseas, or storing it elsewhere, does not give the company a free pass to ignore a nation's (or European 

Union's) laws. It is either in compliance with the privacy laws and regulations of that nation, or it is not. For 

example, foreign companies operating in America must comply with the privacy provisions of the Health 

Insurance Portability and Accountability Act (HIPAA), which regulates U.S. citizens' privacy rights for health 

data, or the Gramm-Leach-Bliley rules regulating the privacy of financial data, whether they store a 

customer's data on their own server in the Un ited States (or elsewhere) or on a third-party cloud server in 

another nation. 42 

The focus of discussions on cross-border data flows shou ld be on the actual issue (e.g. privacy or 

cybersecurity), rather than the geographic location of the data. The new Privacy Shield agreement between the 

Un ited States and the European Union attempts to address this. The Privacy Shield agreement shows that 

while the United States and Europe have different laws and values with regard to privacy, these can be 

addressed in a manner that that does not restrict or block data flows. One of the reasons why the Privacy 

Shield negotiations have become so heated is that there are misconceptions about how each respective side 

treats privacy. Too many Americans believe European Union (EU) privacy rules exclude even the most basic 

uses of data for commercial purposes and innovation, while too many Europeans believe that the United 

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States is a "wild west" in terms of data privacy. In fact, both sides share similar values with regard to privacy, 

the rule of law, and government access to data, and both benefit enormously from globalization and data 

innovation. Moreover, as ITIF has written, as long as U .S. firms have physical nexus in Europe, European 

privacy law continues to apply for European data U .S. firms collect, regardless of where they store that data. 43 

Second, some governments require data to stay in-country due to concerns over the abili ty of governments to 

get access to data. This appears to be a motivation for many non-democratic governments, such as China and 

Russia, which require that data be stored inside their borders. There is no question that localization policies 

such as these give government security services easier access to data. However, those nations do not need to 

mandate localization for their governments to have legal access to data. They are still able to compel 

companies doing business in their markets to turn over data, even if it is stored outside their nation. In truth, 

even this is not enough for some governments; they want the power to collect data without the knowledge of 

the company involved, and that is easier if the data are stored locally. For democratic nations that abide by the 

rule of law, there is no need for mandating data be stored domestically as long as there is a wel l-functioning 

and robust system of mutual legal assistance treaties (MLATs) in place, as described subsequen tly. 

Finally, a number of countries see "data mercantilism" as a path to economic growth, because they believe 

(incorrectly) that if they restrict data fl ows they will gain a net economic advantage from data-related jobs. 44 

Many nations that invoke privacy and security concerns as a justifi cation to impede cross-border data fl ows 

are often simply commandeering these issues as a smokescreen for naked data protectionism. And all too often 

countries do so spurred on by domestic IT compan ies seeking an unfair leg up over foreign competitors. For 

example, Australian businesses have trumped up privacy and security fears to promote protectionist policies 

that spare them from having to compete with U .S. (and other foreign) technology compan ies. When 

Rackspace, a Texas-based cloud computing firm, built its first data center in Australia, Mac Tel, a domestic 

competitor, tried to stoke fears of U .S. surveillance efforts under the Patriot Act to push Rackspace out of the 

Australian market. 45 In fact, this same Australian company funded a report calling on Australian policymakers 

to impose additional regulations designed to put foreign cloud computing competitors at a disadvantage. 46 

Similarly, some calls in Europe for data localization requirements and procurement preferences for European 

providers, and even for a so-called "Schengen area for data"-a system that wou ld keep as much data in 

Europe as possible-appear to be motivated by pure digital protectionism. 47 For example, Germany has 

started to create a dedicated national network, called "Schlandnet." 48 And Deutsche Telecom has pushed the 

European Commission to adopt rules making it harder for U .S. cloud providers to operate in Europe in order 

for them to gain market share. Similarly, the French government has gone so far as to put €150 million into 

two start-ups, Numergy and C loudwatt, to build up a domestic cloud infrastructure ("le cloud souverain") that 

is independent of U .S. technology compan ies. 

49 French Digital Economy M inister Fleur Pellerin has 

explained that France's goal is to locate data servers and centers in French national territory and to "build a 

France of digital sovereignty." 50 

Examples of countries enacting barriers to cross-border data fl ows are rife: 

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D Australia requires that local data centers be used as part of e-health record systems. 51 The purported 

rationale is to protect Australians' privacy and security. However, as noted, mandates on where data is 

stored do not improve privacy or security. Nevertheless, Australian IT companies have used this fear 

to promote protectionist policies that spare them from having to compete with U.S. technology 

companies. 

D China, not surprisingly, given its history of rampant " innovation mercantilism," has implemented a 

wide array of protectionist measures on data. To start with, it has long limited data "imports. " For 

example, China's Ministry of Public Security runs the Golden Shield program (commonly referred to 

as the "Great Firewall of China"), which restricts access to certain websites and services, particularly 

ones that are critical of the Chinese Communist Party. As the United States Trade Representative's 

Office recently noted, Chin a's "outright blocking of websites appears to have worsened over the past 

year [20 15] ." 52 

More importantly from a trade perspective, China has made a number of moves in the wake of the 

Snowden revelations to restrict the cross-border movement of data. 53 For example, Chinese law 

prohibits institutions from analyzing, processing, or storing off-shore personal financial, credit, or 

health information of Chinese citizens. A recent set of draft administrative regulations for the 

insurance industry included localization requirements, both for data centers and cross-border data 

flows. Furthermore, China's Counter-Terrorism Law requires Internet and telecommunications 

companies and other providers of"critical information infrastructure" to store data on Chinese 

servers and to provide encryption keys to government authorities. 54 Any movement of data offshore 

must undergo a "security assessment. " And China's draft cybersecurity law would require IT 

hardware to be located in China. China's policy framework to develop a domestic cloud computing 

capability also refers to the importance of regulating cross-border data flows. 

D Two Canadian provinces, British Columbia and Nova Scotia, have implemented laws mandating 

that personal data held by public bodies such as schools, hospitals, and public agencies must be stored 

and accessed on ly in Canada unless certain conditions are fulfilled. 55 

D Many are concerned that Europe will introduce data protectionist policies as part of its Digital Single 

Market, General Data Protection Regulation (GDPR), and European C loud initiatives. 56 The GDPR 

proclaims data privacy to be a fundamental human right; introduces a "right to be forgotten," which 

Europe is attempting to apply to the whole of the global Internet; and proposes significant fines-as 

high as €100 million or up to 5 percent of an enterprise's annual revenue-for firms found to be in 

violation of European data protection laws. 

Certain EU Member States have instituted measures that require news aggregators, which provide 

snippets of text from other news sources, to remunerate those other sources for use of the sn ippets. 

These measures serve as an arbitrary tax on firms that help drive traffic to publishing sites. Mter 

Germany implemented such measures, some aggregators dropped links to sites seeking compensation 

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for use of the indexed extracts and related links, causing many publishers to opt out of requiring such 

payments. In late 20 14, Spain passed a similar measure which made such payments mandatory. 57 

In short, all too often European digital trade policies are animated by a desire to impede the 

competitiveness of American digital or information technology-based enterprises competing in 

European markets. fu Juliette Garside divulged the sentiment in 2014 in The Guardian, writing that, 

"Brussels and Berlin are mobilizing to defend ... the digital environment of Europe's inhabitants; their 

enemies are the Silicon Valley corporations that seek to dominate it. " 58 Such thinking, too prevalent 

in Europe, hinders digital trade, to the harm of both Europe's and America's economy alike. 

D India has considered a measure that would require companies to locate part of their in formation and 

commun ications technology infrastructure within the country to provide investigative agencies with 

ready access to encrypted data on their servers. 

59 In February 2014 the Indian National Security 

Council proposed a policy that wou ld institute data localization by requiring all email providers to 

setup local servers for their India operations and further mandate that all data related to 

commun ication between two users in Indi a should remain within the country.

60 

D In 20 14, Indonesia began considering a "Draft Regulation with Techn ical Guidelines for Data 

Centres" that wou ld require Internet-based compan ies, such as Google and Facebook, to set up local 

data storage centers.

61 The Technology and Information M inistry is now implementing this 

regulation under the country's Electronic Information and Transactions Law. 62 The Indonesian 

government may pursue regulation or national legislation on personal data protection in 2016, either 

of which could further define requirements for data localization. 

63 

D In 20 10, Malaysia passed the Personal Data Protection Act, which requires data about Malaysians to 

be stored on local servers. 

64 

D In 20 10, New Zealand's tax collection agency, the Commissioner of Inland Revenue, issued 

guidance that electronic business and tax records must on ly be stored in New Zealand. 65 

D In 20 14, Nigeria put into effect the "Guidelines for N igerian Content Development in Information 

and Communications Technology." Several of the provisions regard restrictions on cross-border data 

flows and mandate that all subscriber, government, and consumer data be stored locally.

66 

D In Russia, amendments to the Personal Data Law mandate that data operators which collect personal 

data about Russian citizens must "record, systematize, accumulate, store, amend, update and retrieve" 

data using databases physically located in Russia. 67 This personal data may be transferred out, but 

only after it is first stored in Russia. Even the guidelines for this law, which went into effect in 

September 20 15, acknowledge that there are signifi cant ramifications for foreign compan ies due to 

this law. 

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D In South Korea, the Personal In formation Protection Act requires compan ies to obtain consent from 

"data subjects" (i.e., the individuals associated with particular datasets) prior to exporting that data. 68 

The Act also requires "data subjects" to be in formed about whom receives their data, the recipient's 

purpose for having that in formation, the period that information will be retained, and the specific 

personal in formation to be provided. This is clearly a substantial burden on companies trying to send 

their data across borders. 

D Turkey passed a law in 20 14 mandating that companies process all digital payments inside its 

borders. This regulation caused Pay Pal to suspend its Turkish operations on May 31 , 2016 after the 

country's finan cial regulators rejected its license applications--on the grounds that PayPal did not 

keep its IT systems in Turkey.

69 

D Venezuela has passed regulations requiring that IT infrastructure for payment processing be located 

domestically. 

D In Vietnam, a Decree on Information Technology Services requires d igital service providers or 

websites to locate at least one server within V ietnam. 

70 Vietnam had also put forth a draft IT Services 

Decree that would include additional data localization requirements as wel l as restrictions on crossborder data flows. V ietnam is also establishing a national payments ga teway that discriminates against 

foreign electron ic payment services-favoring a new loca l firm called "NAPAS"-in direct 

contravention of its Trans-Pacific Partnership (TPP) commitments. 

The examples above show that d igital trade barriers vary in terms of scope and scale, but wh ile some are 

blanket policies that affect all data ore-commerce, there are a few specific sectors and processes that are the 

specific target, such as cloud computing and electronic payment processing. 

Cloud computing services are often a specific target of data localization policies as countries think that this 

will lead to the development of local data centers. These countries think that data localization is a quick way 

to bring economic activity within their borders, but in reality, such policies cause more harm than good. The 

supposed benefits of data localization policies are misunderstood. As data centers become more automated, 

the number of jobs associated w ith each facility, especially for technical staff, decrease. While data centers 

contain expensive hardware and create some temporary construction jobs, they employ relatively few full-time 

staff to operate the equipment, especially as cloud-based technologies have increased automation in data 

centers. 71 The short-term benefit of these jobs is outweighed by the substa ntial costs to build unnecessary data 

centers, a cost which is ultimately passed on to business and consumer customers. 

Barriers to cross-border data transfers for cloud computing add significant costs for local companies. Studies 

show that local compan ies would need to pay 30 to 60 percent more for their cloud computing needs when 

they are compelled to use local vendors and as opposed to global best-of-breed providers. For example, it is 

estimated that businesses that move their cloud computing outside of the European Un ion, in the event of a 

"Eu ropean C loud," could save more than 36 percent. 72 India, Indonesia, and Russia have no cloud 

computing providers from key global data centers, thereby forcing local companies to build their own or use 

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cloud providers that are not the most efficient or secure. Cross-border data flow restrictions go against the 

very distributed design of the Internet and do not achieve the goals often cited for such misguided policies. 

Electron ic payment services are also often targeted by data localization and other regulations in a way that 

effectively acts as a barrier to digital trade, often enacted to favor a local firm. Such services, through credit 

card compan ies (such as Visa and MasterCard) or online providers (such as Pay Pal), are critical enablers of the 

global digital economy and are closely tied to trade flows. Such cross-border transactions are growing rapidly 

as technology, consumer preferences, and services continues to change and as more people in more countries, 

especially emerging economies, gain access to the Internet and online e-commerce platforms. 

As global electronic payment services grow, more countries are trying to capture this activity for local firms by 

introducing protectionist policies. In 2010, the United States won a legal case against China at the World 

Trade Organization for measures it had introduced that discriminated against foreign payment providers-a 

critical win given the large and growing role of the Chinese market for these services. Recognizing the rise of 

these measures, the TPP's financial services chapter explicitly prohibits member countries from introducing 

measures that act as a barrier to the cross-border delivery of electronic payment card services. Despite this 

provision, it is disappointing to learn that Vietnam---clespite this being raised as an issue by the United States 

Trade Representative-is pursuing measures that directly contravene this provision by enacting a barrier that 

favors a new local firm over foreign service providers. 

The Trans-Pacific Partnership (TPP)-Breaking Down and Protecting Against Digital Trade Barriers 

The TPP's e-commerce chapter takes a number of positive steps in pushing back against barriers to digital 

trade. The TPP is the first trade agreement to include provisions that prohibit barriers to cross-border data 

flows and forced data localization, thus outlawing the practice of requiring companies to store data or setup 

computing facilities within a country's borders as a condition of competing in domestic markets. These 

updated rules are sorely needed as current World Trade Organization (WfO) rules were largely codified in 

the 1990s when the Internet as we know it barely existed, as did even the concept of digital protectionism. fu 

demonstrated by the examples above, the failure of these rules to adapt to modern trade has allowed countries 

to introduce a range of barriers to cross-border data flows. 

The TPP's e-commerce chapter recognizes the vital importance of digital trade to the modern global 

economy. Thee-commerce chapter addresses a range of issues that enable digital trade, including provisions 

that: 

D Prohibit countries from imposing customs duties on electronic transmissions and digital goods; 

D Prohibit countries from discriminating against digital products as compared to tangible goods and 

services; 

D Prohibit requirements that force suppliers to share valuable software source code with foreign 

governments or commercial rivals as a condition of entry; 

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D Faci litate the recognition and use of electronic authentication and signatures; 

D Ensure countries have measures against unsolicited emails (spam); and 

D Ensure that countries have laws and regulations that protect consumers from fraudulent and 

deceptive activities and protect personal information on line, and sets up a mechanism for countries to 

cooperate on a range of e-commerce related issues. 

The TPP's primary contribution to developing a modern set of rules for digital trade is its provisions 

addressing localization. The TPP's key provisions prohibit countries from enacting barriers to cross-border 

data flows or from enacting requirements that companies must use local (or locate their own) computing 

facilities within a country as a condition of doing business in that country.

73 These provisions are indeed 

groundbreaking, as before there were no rules in place that protected and enabled cross-border data flows. 

These rules also go a long way to setting a new norm for the global digital economy, as TPP member 

countries are home to close to 600 million Internet users, or almost one in every flve global Internet users. 

The TPP's impact on global e-commerce and data fl ows will on ly grow if more countries join the 

agreement-as will happen iflndonesia, the Philippines, South Korea, Thailand, and others follow through 

on their expression of interest in jo ining the TPP-or if these provisions are adopted in other trade 

agreements. 

However, how effective these rules will be in removing existing-and preventing future-barriers to digital 

trade depends in part on how TPP members interpret, enact, and enforce these rules, especially the exceptions 

to each of these provisions. The provisions prohibiting barriers to cross-border data fl ows and forced 

localization each contain an exception that nothing in these provisions "shall prevent a party from adopting or 

maintaining measures inconsistent [with the prohibition] to achieve a legitimate public policy objective." In 

terms of what is a legitimate public policy, the TPP refers to current World Trade Organ ization exemptions 

for public morals, public order, and privacy. 74 Such provisions would clearly be legitimate, for example, in the 

case of blocking child pornography; they would not be if a government refused to allow insurance compan ies 

to locate their data on servers in another nation. The lack oflegal jurisprudence (e.g., countries challenging 

digital trade barriers in a legal dispute at the WTO) on these exceptions makes it unclear whether barriers to 

data fl ows enacted due to privacy and cybersecurity concerns are technically allowed or not. 

This raises the prospect that TPP member countries' existing barriers to cross-border data flows, such as for 

privacy reasons (such as in Australia, Canada, and Malaysia) or national security reasons (such as V ietnam), 

may be allowed to remain in place (or even be potentially copied by other TPP members). The TPP includes 

language that tries to limit the potential for such exceptions to be misused by stating that any rule that 

contravenes these prohibitions "is not applied in a manner which would constitute a means of arbitrary or 

unjustifiable discrimination or a disguised restriction on trade" or "does not impose restrictions ... greater than 

are required to achieve the objective." However, the effectiveness of these limitations will likely depend in part 

upon implementation, and potentially, enforcement through the TPP's dispute resolution mechanism to 

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determine whether such barriers to data flows are indeed an unjustifiable trade barrier and/or unnecessarily 

restrictive. 

The TPP's much-improved framework for digital trade and data flows was let down in one key areafinancial data. The Un ited States undermined its own interests in the TPP by pushing for the financial sector 

to be exempted from the agreement's prohibitions on measures that wou ld force data to be stored within a 

country's geographic borders. This rule, made at the insistence of U .S. financial regulators, unfortunately 

undermined the Un ited States' natural position as a leader of the global digital economy and as an advocate 

for the free flow of data. 

As ITIF argued in its report, Financial Data Does Not Need or Deserve Special Treatment in Trade Agreements, 

the TPP's special treatment of financial data was unnecessary and redundant, given financial regulatory 

reforms introduced after the global financial crisis (in the Dodd-Frank Wall Street and Reform and 

Consumer Protection Act) and existing trade provisions that provide an exemption for prudential 

regulation. 75 This special treatment of financial data was also dangerous as it created a pernicious loophole 

that could be misused for protectionist purposes by other countries, such as China, India, or Russia. Allowing 

forced local storage for financial data on regulatory grounds could have been the start of a slippery slope that 

allowed these countries and others to force local data storage for other types of data, such as health and 

education, based on broadly and poorly defined " regulatory" concerns. 

Making a special case out of financial data would be highly problematic. G iving countries a free pass to 

require certa in data to be stored inside their borders would raise costs for U .S. financial services firms, and the 

firms would likely pass those costs on to the businesses and customers they serve. The special carve out also 

validates the false impression that moving data across borders is somehow inheren tly riskier than storing it 

locally, which would embolden data mercantilists and undermine U .S. efforts to push back aga inst such 

measures. 

Thankfully, the Obama administration has recognized that this provision needs fixing. Reports on the 

outlines of this fix indicate it will go a long way toward removing this loophole. The fix sets out specific steps 

to facilitate regulatory access to financial data among TPP member countries, and in doing so, makes any 

potential localization a truly final resort, while ensuring that countries remain committed to not enacting 

policies that require data localization or other barriers to data flows. 76 As ITIF has argued, in an ideal world 

this provision would be dropped completely from the TPP and any other future U .S. trade agreements.

77 

However, given the position of financial regulators, the fix seems to find a middle ground for facilitating data 

flows and legitimate government access to data. 

Looking Ahead-Building on TPP in TiSA and T-TIP 

The last few months have seen mixed progress on establishing movement toward free trade in data. In many 

nations, trade negotiators are working to build an international consensus and enforceable regime for the free 

flow of data across borders. However, at the same time, law enforcement and intelligence commun ities are 

seeking to preserve or extend their access to data. These two goals are in fundamental tension and unless 

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nations can put in place a reasonable and consistent framework to govern lawful government access to data, 

nations w ill be more likely to restrict cross-border data flows and trade, commerce, law enforcement, and 

intelligence gathering w ill all suffer. 

Indeed, the turbulence in the system now underscores the urgency of addressing these issues, both in terms of 

advancing new trade regimes to establish enforceable rules for free trade in data and in crafting international 

standards for government access to data. However, the Un ited States' recent success in negotiating the TPP, 

the Umbrella Agreement with the European Un ion (which enables sharing of law enforcement data), and the 

Privacy Shield (which manages privacy related data issues) shows that success is possible. Another productive 

step has been congressional passage of the U .S. Judicial Redress Act (since incorporated as part of the Privacy 

Shield), wh ich grants EU citizens standing to sue the U .S. government concern ing its collection of EU data. 

Nevertheless, a key challenge to ach ieving strong outcomes on data flows in upcoming trade agreements will 

be ensuring that privacy and national security exemptions are specific and narrow enough to ensure that 

members are not able to use these as an excuse for digital protectionism. fu noted, the exemptions under 

existing international agreements, such as the WTO's General Agreement on the Trade in Services (GATS), 

are widely referenced and used in bilateral and regional trade agreements, but are vaguely defined and 

untested by legal challenges, thereby providing a loophole for data protectionism. The Un ited States should 

use trade agreements and other international mechanisms to push for greater information sharing and 

cooperation on the legitimate and practical concerns involved in improving a country's cybersecurity and 

privacy protections. This reduces a country's ability to misuse concerns over these issues as a guise to enact 

data protectionist policies. fu with the T PP, this involves cooperation on a wide range of issues such as 

protecting personal in formation, protecting consumers online, cybersecurity, and government access to on line 

information. Directly addressing these legitimate concerns will allow stronger rules on cross-border data flows 

and localization. 

The Trade in Services Agreement (TiSA) is the United States' most immediate opportun ity to build on the 

TPP. A high-standard TiSA agreement would effectively set a new global norm for rules that support and 

protect the free flow of data. This is because TiSA has a large and d iverse membership of developed and 

developing countries-it includes 15 non -TPP members, including the European Un ion, Colombia, 

Pakistan, South Korea, Taiwan, and Turkey. TiSA countries represent 75 percent of the world's $44 trillion 

services market. 

fu ITIF argues in Crafting an Innovation-Enabling Trade in Services Agreement, for TiSA to build and improve 

upon the TPP's efforts to address data localization it needs to explicitly cut the false link between geography 

and data policies concerning privacy and cybersecurity. 78 This should be a key litmus test to evaluate any final 

agreement. The United States should not budge from its commitment to use TiSA to enact strong rules to 

protect data flows, especially as more countries are likely to sign onto TiSA after it is completed. TiSA 

member countries are already d iscussing how the agreement can be expanded from a plurilateral agreement 

outside the WfO (which it is now) into a multilateral agreement under the WTO. Such an expansion means 

the rules in TiSA wou ld formally become the core of the international trading system for services and data. 

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Holding firm to this commitment is important because as much as TiSA's membership is notable for whom is 

involved, it is equally important to recognize which countries are not-data mercantilists such as China, 

India, Indonesia, and Russia. An upfront commitment for these countries to join TiSA should for be for them 

to remove data localization measures, practices and other barriers to cross-border data flows. 

The Un ited States has another sign ificant opportunity to shape the rules governing digital trade in its critical 

negotiations for a Transatlantic Trade and Investment Partnership (T-TIP) with the European Union. U .S. 

trade negotiators must insist that strong cross-border data provisions be included. If the T-TIP is truly going 

to be a "2 1st century trade agreement," it must give data flows the same level of consideration it would have 

given manufacturing in a 20th century agreement. 

Unfortunately, the prospects forT-TIP to set new standards for unimpeded digital trade and data flows are 

not looking sangu ine. First, the Un ited Kingdom's decision to leave the European Union will likely delay 

further negotiations as European Un ion countries re-evaluate their positions in T -TIP (minus the United 

Kingdom) as the United Kingdom and the European Un ion try to figure out how to reconfigure 

arrangements for trade, political, and other issues. Second, T-TIP negotiations over digital trade and data 

flows have lagged other issues, as the European Union has proven unwilling to discuss these issues until the 

transatlantic data transfer agreement, the Privacy Shield, is in place. 79 While the European Union's efforts to 

negotiate and implement the Privacy Shield agreement are commendable, they should not hold back efforts to 

create a broader framework to support digital trade and the free flow of data. Thankfully, the European 

Un ion recently announced that Privacy Shield shou ld be implemented shortly, so hopefully T-TIP 

negotiations can catch up after this happens. 8° Finally, when negotiations do start in earnest, they are likely to 

be challenging as a growing range of EU policymakers are turning against trade and are attached to the notion 

that data needs to be stored locally for it to be secured or for privacy to be maintained. All these factors, when 

taken together, pose a great threat toT-TIP which, to be effective, needs to include data localization 

measures. 

The challenge now for forward-looking policymakers will be to approve TPP, focus on TiSA and T -TIP, and 

look beyond them. The United States shou ld push further to protect the free and unfettered movement of 

data across the globe-for example by champion ing a "Data Services Agreement" at the World Trade 

Organization, which would commit participating countries to protect cross-border data flows and prevent 

signatory countries from creating barriers to them. It would be akin to the Information Technology 

Agreement (IT A)-which 54 countries commendably agreed to expand with 201 new product lines earlier 

this year-for cross-border data flows. At the same time the United States pushes for stronger, broader, and 

more enforceable trade regimes on cross-border data protection, it must also lead on reform of government 

access to data. Otherwise, many nations will likely use concern over government "snooping" as an excuse to 

restrict cross-border data flows, even if they have signed a trade agreement covering the issue. 

To address this, the United States and European Union should collaborate toward creating a "Geneva 

Convention on the Status of Data," as ITIF writes in The False Promise of Data Nationalism. The purpose of 

such a convention would be to resolve international questions of jurisdiction and transparency regarding the 

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exchange of information. This would allow for the development of global rules on data sharing and ensure 

that legitimate concerns regarding privacy and cybersecurity are taken into account as cross-border data flows 

increase. This multilateral agreement would establish specific rules for government transparency, create better 

cooperation for legitimate government data requests, and limit unnecessary access to data on foreign citizens. 

It would also settle questions of jurisdiction when companies encounter conflicting rules, assist nations in 

reassuring individuals at home and abroad that the era of mass electronic surveillance unencumbered by 

effective judicial oversight is at an end, and better hold nations accountable for respecting basic civil liberties. 

And just as the principles of the Geneva Convention are taught to soldiers in basic training, the principles of a 

Geneva Convention for Data shou ld be taught to network administrators and IT professionals worldwide, 

thereby ensuring that the ethics of the agreement are embedded at all levels of industry and government. 

The Un ited States could also strengthen its MLAT regime by having the government expedite and simplify 

the MLA T process through a variety of measures such as increased funding for the Department of Justice's 

Office of International Affairs and the introduction of standardized, online requests. It could also allow 

countries with high human rights standards to join the eventual U.S.-UK MLAT agreement. 

At the same time U .S. policymakers shou ld insist that other nations not use variations in privacy laws as a 

justification for limiting free trade in data, whether policymakers in these nations are doing so out of a sincere 

concern for privacy or whether they are using privacy as a guise for data protectionism. If the EU precedent 

(for data privacy policies) stands on ly one of two outcomes are possible. The first is that all nations will have 

to put in place domestic privacy rules as strict as Europe's, or in fact, as strict as the nation with the strictest 

rules in the world. Otherwise, the nation with the strictest rules will simply say that data cannot leave its 

nation. To be sure, this is an outcome that most U.S. privacy advocates relish, for they have long advocated 

that the United States adopt EU-style privacy laws, ignoring the real economic and innovation costs that 

would come from doing so. When firms using the Internet cannot use data effectively because of draconian 

privacy rules, the result, as studies have shown, is less revenue, meaning a less robust Internet ecosystem. 81 In 

fact, in looking at the impacts of the European Un ion's previous (2002) Privacy and Electronic 

Communications Directive (PECD), A vi Goldfarb and Catherine Tucker found that they resulted in an 

average reduction in the effectiveness of online ads of approximately 65 percent. 82 The authors write "the 

empirical findings of this paper suggest that even moderate privacy regulation does reduce the effectiveness of 

online advertising, that these costs are not borne equally by all websites, and that the costs should be weighed 

against the benefits to consumers." If European advertisers reduced their spending on on line advertising in 

line with the reduction in effectiveness resulting from stricter privacy regulations, "revenue for on line display 

advertising cou ld fall by more than halffrom $8 billion to $2.8 billion." And without that revenue it has been 

more difficult for European Internet firms to thrive. And now many U.S. privacy advocates are using this 

breakdown to push their innovation-restricting policy agenda to impose European-style privacy regulations 

onto the United States. But as noted above, it is a "red herring" to assert that the on ly way to protect the 

commercial privacy and security of a nation's citizens' data is to restrict the export of that data. Compan ies 

simply cannot escape legal responsibilities for data by moving it outside of a nation. Moreover, the United 

States should not allow other nations to dictate U .S. laws and regulations about the Internet when doing so 

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will have no effect on trade-doing so would set a dangerous precedent for other policy issues, such as 

freedom of expression. 

83 

The second possible outcome is that nations will effectively levy a privacy " tariff' on all companies in nations 

that do not adopt their rules, as they will have to use more complex and costly arrangements to transfer data 

across borders. Neither solution is acceptable in a global economy. 

As G20 countries increasingly consider digital trade issues, another step the United States should take is to 

work to obtain G20 leaders' endorsement of the O ECD Internet policymaking principles, which include 

allowing cross-border information flows and respecting human rights, as wel l as endorsement of interoperable 

privacy protection, such as APEC' s privacy framework. 84 

Conclusion 

In conclusion, data is the lifeblood of the modern global economy. The TPP represents the best opportunity 

to establish high-standard rules that will permit digital trade to flourish to the maximum possible extent-and 

ensure that U .S. enterprises, many of which have pioneered the creation and innovative use of the Internet 

and other digital technologies, can enjoy more open access to partners' markets and be able to seamlessly 

move data across international borders. If the TPP is not adopted the global digital economy will be put at 

risk, because a significant opportun ity will be lost to put an affirmative stake in the ground demonstrating 

that localization barriers to digital trade are unacceptable in the modern global economy. The Un ited States 

should view the TPP as a building block toward stronger and more comprehensive rules for digital trade and 

data flows in TiSA, T -TIP, and elsewhere. The Un ited States should use these trade agreements to protect the 

ability of individuals and companies to engage in data-driven commerce without geographic restrictions. 

Companies are using data in creative and wondrous ways to create new value for the global economy. 

Policymakers must be equally visionary in shaping rules that protect citizens' rights to privacy, without 

unduly encumbering data's catalytic economic growth and innovation potential. America's ability to grow its 

economy and jobs will depend on it. Thank you again for this opportun ity to appear before you today. 

Endnotes 

1. James Manyika et a!, "Digital Globalization: The New Era of Global Flows" (McKinsey Global Institute, March 20 16), 

http://www .mckinsey.com/ ,..fmedialmckinsey/businesso/o20functions/mckinseyo/o20digi tal!o uro/o20insights/digitalo/o20globalizati 

ono/o20 theo/o20 newo/o20erao/o20ofo/o20globalo/o20flows/mgio/o20digitalo/o20globalizationo/o20executiveo/o20summary.ashx. 

2. Ibid. 

3. Daniel Castro and Alan McQuinn, "Cross-Border Data Flows Enable Growth in All Industries" (Information T echnology and 

Innovation Foundation, February 20 15), http://www2.itif.org/20 15-cross-border-dataflow...pdP. _ga= 1.17 4884642.1240521 073. 14047 49065. 

4. Robert D. Atkinson, Stephen Ezell, Scott Andes, and Daniel Castro, "The Internet Eco nomy 25 Years After .com" (Information 

T echnology and Innovation Foundation), March 5, 2010), https://itif.org/publications/20 10/03/ 15/inrernet-economy-25-yearsafter-com. 

5. Stephen Ezell, " Digital Trade Act of 20 13 Instrumental to Protecting and Empowering the Global Digital Economy," Innovation 

Files, December 12, 20 13, http://www.innovationfiles.org/ digital-trade-act-of-20 13-instrumental-ro-protecting-andempowering-the-global-digital-economy/. 

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6. National Science Board (NSB), Science and Engineering Indicators 2012, (NSB, 2012), appendix table 6-13, Value added of 

ICT industries, by region/country/economy: 1990- 2010. 

7. I nternarional Trade Administration (ITA), "20 15 Top Marker Report Cloud Compming" (ITA, July 20 15), 

http:/ /rrade.gov/topmarkets/pdf/Cloud_ Computing_ T op_Markers_Reporr.pdf. 

8. Shobhit Se£h, "World's T op 10 Internet Companies," lnvestopedia, March 4, 201 5, 

http:/ /www.investopedia.com/articles/personal-flnance/0304 1 5/worlds-top-I 0-internet-companies.asp. 

9. Ezell, "Digital T rade Act of 20 13 Instrumental to Protecting and Empowering the G lobal Digital Economy." 

10. Daniel Castro and Travis Korte, "Data Innovation I 0 I: An Introduction to the Technologies and Policies Supporting DataDriven Innovation" (Center for Data Innovation, November 4, 2013), http://www2.datainnovation.org/2013-data-innovationIOI.pdf. 

11. James Manyika et a!., "Open data: Unlocking Innovation and Performance with Liquid Information" (McKinsey Global 

Institute, October 2013), 

http://www.mckinsey.com/insights/business_technology/open_data_ unlocking_innovation_and_performance_with_liquid_infor 

marion. 

12. Peter Groves et al., "The Big-Data Revolution in US Health Care: Accelerating Value and Innovation" (McKinsey & Company, 

April 20 13), http://www.mckinsey.com/ insighrs/health_systems_and_services/the_big-data_revolution_in_us_healrh_care. 

13. James Manyika et al., "Unlocking the Potential of the Internet Of Things" (McKinsey G lobal Institute, J une 20 15), 

http://www.mckinsey.com/insighrs/business_technology/rhe_internet_of_things_the_value_of_digitizing_the_physical_world. 

14. Joseph Bradley et al. , "Internet of Everything: A $4.6 Trillion Public-Sector Opportunity" (Cisco, 2013), 

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16. O rganization for Economic Cooperation and Development (OECD), ''Daca-driven Innovation, Big Data for Growth and Wellbeing," (OEC D, October 20 14), 73, http://www.oecd.org/sti/inno/daca-driven-innovation-interi m-synthesis.pdf. 

17. Michael Mandel, "Data, Trade, and G rowth" (Progressive Policy Institute, April 2014), http://www.progressivepolicy.org/wpcontent/ uploads/20 14/04/20 14.04-Mandei_Dam-Trade-and-G rowth. pdf 

18. O ECD, "Data-driven Innovation, Big Data for G rowth and Well-being," 109. 

19. Stephen Ezell, "Data a Key Driver of Transatlantic Economic Growth," Innovation Files, July 23, 20 15, 

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20. Ezell, "Digital T rade Act of 2013 Instrumental to Protecting and Empowering the Global Digital Economy." 

2 1. U.S. International Trade Commission (lTC), Digital Trade in the U.S. and Global Economies, Part 2, (U.S. lTC, August 2014), 

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22. Ibid. 

23. European Commission, "Communicatio ns from the Commissio n to the European Parliament and the Council on the 

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24. Manhieu Pelissie du Rausas et al., "Internet Maners: The Net's Sweeping Impact O n Growth, Jobs, and Prosperity" (McKinsey 

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39. Ibid. 

40. Robert Atkinson, Stephen Ezell, and Michelle Wein, "Localization Barriers to Trade: Threat to the Global Economy" (ITIF, 

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48. Ibid. 

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2 1 
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73. The Trans-Pacific Partnerships Trade Agreemenr, Chapter 14 E-Commerce, Articles 14. 11 and 14.13. 

74. ''General Agreement on Trade in Services," World T rade O rganization, accessed July 8, 2016, 

https://www.wto.org/english/res_e/booksp_e/analytic_index_e/gats_02_e.htm. 

75. Nigel Cory and Robert Atkinson, "Financial Data Does Not Need or Deserve Special Treatment in T rade Agreements" 

(Information Technology and Innovation Foundation, April 20 16), hrrp:l/www2.irif.org/2016-flnancial-data-trade-deals.pdf. 

76. Nigel Cory, "The TPP's Financial Data Carve Our- USTR Closes a Loophole for Digital Protectionists," Innovation Files, July 

7, 2016, http://www.innovationfiles.orglthe-rpps-financial-dara-carve-our-ustr-closes-a-loophole-for-digiral-protectionists/. 

77. Cory and Atkinson, "Financial Data Does Not Need or Deserve Special Treaunent in T rade Agreements." 

78. Nigel Cory and Stephen Ezell, "Crafting an Innovation-Enabling T rade in Services Agreement" (Information Technology and 

Innovation Foundation, June 20 16), http://www2.itif.org/2016-tisa-services.pdf. 

79. "O'Sullivan: No Work on ITIP Digital Chapters Until Privacy Shield In Place, Jns;d~ U.S Trade, May 17, 2016, 

http://insideuade.com/daily-news/o%E2o/o80o/o99sullivan-no-work-ttip-digiral-chaprers-unril-privacy-shield-place. 

80. Julia Fioretti, "EU-U.S. commercial data transfer pact clears final hurdle," Reuters, July 8, 20 16, 

http://www.reuters.com/article/us-eu-dataprotection-usa-idUSKCNOZOOSH. 

8 1. Catheri ne Tucker, "Empirical Research on the Economic Effect of Privacy Regulation," journal on Telecommunications and High 

T~clmokgy lAw 10 (2012): 265, http://cetucker.scriprs.mit.edu/docs/law_summary_20 11.pdf 

82. A vi Goldfarb and Catherine Tucker, "Privacy Regulation and O nline Advertising," 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id = 1600259/ 

83. Daniel Castro and Alan McQuinn, "Cross-Border Data Flows Enable Growth in All Industries" (ITIF, February 2015), 

http://www2.itif.org/2015-cross-border-data-flows.pdf?_ga= 1.174884642.124052 1073.1404749065. 

84. Ibid. and Asia-Pacific Economic Cooperation (APEC), APEC Privacy Framework (Singapore, APEC, 2005), 

lmp://www.apec.org/Groups/Commictee-on-T rade-and-lnvestmenc/ ed Fil s/Group ECSG/ 5 _ecsg_privacyframewk.ashx 

23 
31 

Chairman REICHERT. Mr. Padilla. 

STATEMENT OF CHRISTOPHER PADILLA, VICE PRESIDENT, 

GOVERNMENT AND REGULATORY AFFAIRS, IBM CORPORATION 

Mr. PADILLA. Thank you, Mr. Chairman. A privilege to be here 

today on behalf of IBM. 

And I would make one point, and that is to say this from IBM 

as a technology company, the digital trade is not a technology company issue. It is about every industry, because every industry and 

all consumers are becoming increasingly digital. And to illustrate 

that point, I would like to use an example, a hypothetical example. 

Imagine that you as Members of the Committee were invited to 

Brussels by the European Parliament for an interparliamentary 

dialogue on trade. If you check in for an evening flight to Brussels 

via London, the minute you do so, the airline sends data ahead of 

you to Heathrow to facilitate the transfer of your baggage between 

flights, to send security and customs clearance information, and 

even to communicate your meal preferences for the next flight. 

While you are flying, the engines on your aircraft are automatically transmitting data ahead of you to ground crews in London via 

a satellite link through a data center in the United States saying 

that they need some minor maintenance when the plane lands. 

When you land at Heathrow, you might take advantage of your layover to use your U.S. ATM card to get some local currency. You 

might post a few photos on your Facebook account. You might 

check The Weather Channel app on your iPhone to see if it will be 

raining in Brussels, which it probably will be. And you might even 

use the app on your device to look at the Wimbeldon app and 

watch Serena Williams win another championship. 

You are not even in Brussels yet, and in less than 12 hours you 

have created, caused, or benefited from literally scores of cross-border movements of data. Your flight information, your baggage 

count, your meal preferences, your banking transaction, your 

Facebook post, your weather inquiry, and even your sports fix 

would not have been possible or as easy if data were not permitted 

to flow freely in the cloud. 

And at IBM we know this because we touched each one of those 

transactions through your airline reservation system, through engine maintenance systems, through banking networks all run and 

managed by IBM. Or the IBM Weather Channel app on your 

iPhone, which is the most downloaded app there is. Or if you 

watched Wimbeldon on your Wimbeldon app on your device, that 

came too from IBM. And we supported it through data centers in 

Toronto; New York; San Juan, Puerto Rico; Melbourne; and London. 

Now, imagine for a minute that your trip had proceeded, but 

there were onerous rules preventing your data from going ahead of 

you to Europe or if the data you generated while you were in Europe was required to stay there within the European Union. This 

is not a hypothetical risk. In fact, there was a very real possibility, 

just a few months ago, that transatlantic data flows might have 

been interrupted, absent a special US/EU privacy shield agreement 

signed just yesterday in Brussels to allow those flows to continue. 

32 

There is continued pressure for digital protectionism from France 

to India to Brazil to China. Countless countries are seeking to restrict the flow of data or require that it be stored locally. 

So the point is that this is not just an issue for companies like 

IBM. It affects countless industries: Airlines, express delivery 

firms, retailers, banks, engine manufacturers, and every one of us 

as a consumer. The simple fact is this: If data cannot flow freely, 

21st century commerce cannot happen. I am happy that Congress 

and the administration recognize this with language in Trade Promotion Authority supported on a strong bipartisan basis that made 

clear that this should be a strong negotiating objective of the 

United States in future trade agreements. 

And in TPP, the United States has negotiated the most far 

reaching, groundbreaking really, provisions regarding digital trade 

ever seen in a trade agreement. These protect the cross-border 

movement of data and prevent regulations that require data to be 

stored locally. They also set a vital precedent for every future 

agreement, particularly our current negotiations with the European Union. 

American companies are leaders in digital trade, as you said, Mr. 

Chairman, and, therefore, we have the most to lose from digital 

protectionism or data nationalism. Data touches each of our lives 

every day. But by negotiating trade agreements and trade rules to 

keep that data flowing freely, not only do we protect commerce, but 

we protect the freedom of expression, as Mr. Rangel said. This is 

United States leadership, and we are once again leading toward a 

more prosperous, open, and interconnected future. 

Thank you for the opportunity to be here. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Padilla follows:] 

33 


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Testimony of Christopher A. Padilla 

Vice President, Government and Regulatory Affairs, IBM Corporation 

"Expanding U.S. Digital Trade and Eliminating Barriers to U.S. Digital Exports" 

Before the Ways and Means Trade Subcommittee 

United States House of Representatives 

July 13, 2016 

Chairman Reichert, Ranking Member Rangel, and Distinguished Members of the House 

Trade Subcommittee, thank for you the opportunity to appear before you today to 

discuss IBM's views on the importance of digital trade to the health of the U.S. economy 

and to creating opportunities for American workers. 

I would like to begin with an example of how our work and our lives are touched by the 

everyday movement of data across borders. Let's imagine for a moment that as 

Members of Congress you have been asked to participate in an inter-parliamentary 

dialogue on trade with the European Parliament in Brussels. 

As you check in for an evening flight to Brussels via London, the airline sends data 

ahead of you to Heathrow to facilitate the transfer of your baggage between flights, and 

to communicate your meal preferences to the next flight crew. 

While you're flying across the Atlantic, the engines of your aircraft are automatically 

transmitting ahead to ground crews in London, via a satellite link to a data center in the 

United States, that they will require some minor maintenance upon landing. The 

necessary parts are searched on a database in France, pre-ordered from inventory in 

the UK, and sent via express delivery to Heathrow. 

When you land, you take advantage of your layover to use your U.S. bank ATM card to 

get some local currency, post a few photos to your social media accounts, check the 

Weather Channel app on your iPhone to see if it will be cloudy in Brussels (spoiler alert: 

it will be), and- while you're there- to watch live feed on your tablet of Serena Williams 

winning another Wimbledon title via the tournament app. 

You're not even at your destination but in less than 12 hours, you have created , caused , 

or benefitted from literally scores of cross-border data flows. Your flight information, 

your baggage count, your meal preferences, your banking transaction, your social 

media post, your weather inquiry and your sports fix - none of it would be as easy and 

seamless as you've come to expect were data not permitted to flow freely in the cloud. 

At IBM, we should know, because IBM touched each one of those transactions: 

• Via airline reservation and information systems managed by IBM globally; 

• Via inventory management systems and logistics and delivery systems supported 

by IBM software and data analytics; 
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• Via data centers and banking networks IBM manages in the U.S. and Europe; 

• Via billions of real-time weather forecasts generated each day from thousands of 

weather stations linked to IBM's Weather Channel app; 

• And even via the app for fans to get real-time updates from Wimbledon, from the 

Masters, from the Australian Open, or many other sporting events. 

Now, imagine for a moment how different your trip might have been if onerous rules 

prevented your data from traveling ahead of you to Europe. Or if the data you 

generated in Europe was required to stay there, or be managed only via data centers 

geographically located inside the European Union, or via a "Schengen cloud." 

These are not hypothetical risks - in fact there was a very real chance earlier this year 

that trans-Atlantic data flows might have been stopped absent a special US-EU 

agreement to continue them. And there is continued pressure in countries around the 

world- from France to India, from Brazil to China, from Turkey to Indonesia, for data 

that is generated locally be stored locally as well. 

The cross-border movement of data is not a technology company issue - it's an issue 

affecting every one of us, every day. And whether it is airlines, express delivery 

carriers, banks, engine manufacturers, weather forecasters or sports fans -the modern 

economy is powered by data. 

The simple fact is: If data cannot flow freely, 21 51 Century commerce cannot happen. 

IBM is uniquely positioned to offer our insights on the digital transformation currently 

reshaping the worldwide economy. We're an information technology company that has 

been around for over 100 years. Throughout our history, global trade has been a 

hallmark of IBM's grow1h and success. 

In its latest transformation, IBM has become a "cloud platform and cognitive solutions 

company." Since IBM operates in over 170 countries and earns about two-thirds if its 

revenue outside of the United States, digital trade is essential to our company's future -

and to the future of our clients. 

I gave the example of your hypothetical trip to Europe. Let me give another. Perhaps 

you have heard of IBM Watson from its win on the TV quiz show Jeopardy! in 2011 

against two of the world's best human contestants. (Though you may have heard 

around the cloakroom that your former colleague Rep. Rush Holt did win one round 

against Watson in a contest on Capitol Hill that same year.) 

Well, Watson has come a long way since 2011 , when it did one thing: answering 

questions in natural language. Today, Q&A is just one of more than 30 Watson 

capabilities- all of which have been turned into digital services delivered via the cloud. 

With Watson, every digital application, product and process can understand, reason and 

Jearn. Watson is the world's first truly cognitive system. 

We are currently providing Watson solutions to clients in over 40 countries, including 

leaders and startups in health care , financial services, retail , energy, automotive, 
35 


22164.028

government and more. Watson can now speak Japanese, Spanish, Brazilian 

Portuguese and Arabic. And it can "see" - it is being used to help radiologists scan 

thousands of medical images. 

But if Watson were not able to communicate across borders -to share insights, to glean 

intelligence from countless online medical journals, or to analyze customer or patient 

data against databases stored in cloud centers worldwide -then Watson would be less 

robust ... less cognitive, if you will. 

Digital trade isn't just about business, it's about working across countries, cultures and 

languages to solve humanity's biggest problems. Consider some social challenges from 

today's headlines: Zika. Ebola. Cancer. 

Alarming health care challenges that have touched too many of our families, and they 

don't respect lines on a map. Right now, more than 700,000 people on six continents 

are coming together to create a virtual supercomputer- the World Community Grid -

that medical researchers are using to find better treatments for these diseases, and 

others. It's a tool facilitated by IBM that harnesses spare computing power on 

computers and mobile devices around the world over. .. transmitting data between those 

computers seamlessly and instantly to create a virtual- and free- supercomputer for 

social good. It wouldn't be possible if that spare computing power and data could not 

transit seamlessly and instantly across borders. 

If you're still not convinced, let's look at some numbers: 

IBM estimates that there are currently over 9 billion connected devices around 

the world making up the Internet of Things. 

• And these devices generate 2.5 billion gigabytes of data every day- yet 80% of 

the data are unstructured or "raw," creating a largely untapped new "natural 

resource." 

• According to the World Bank's 2016 World Development Report, a typical day in 

the life of the Internet sees 186 million In stag ram photos sent around the globe; 

152 million Skype calls being made; 36 million Amazon purchases transacted; 

8.8 billion You Tube videos watched ; 803 million Tweets sent; 4.2 billion Google 

searches undertaken; 2.3 gigabytes of web traffic created; and 207 billion emails 

sent- all in just a typical day. 

• All that data generates economic and social value. In 2015, big data vendor 

revenues grew 23.5% from the year before, and that growth is only expected to 

continue. Data-driven revenues that were $18.3 billion in 2014 are expected to 

reach $92.2 billion over the next ten years. 

These statistics illustrate the essential role of data in today's global economy, and 

American ingenuity is leading the way. 
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22164.029

Digital trade has already produced significant benefits for the U.S. economy. The USITC 

estimated in 2014 that digital trade had increased U.S. real GOP by 3.4 to 4.8 percent; 

real wages by 4.5 to 5.0 percent; and aggregate employment by up to 2.4 million jobs. 

The McKinsey Global Institute found that data flows were 45 times larger in 2014 than in 

2005, generating $2.8 trillion in value for the global economy. 

The U.S. clearly has a competitive advantage in digital trade: 

• 13 of the top 20 Internet-based companies are American . 

• The United States is the top creator of digital content of all types -from business 

software to entertainment. 

• And the United States is the world's leading exporter of services, over half of 

which , nearly $400 billion, are digitally enabled. 

In today's networked world, international commerce simply cannot function without 

constant streams of information flowing swiftly and seamlessly across borders. But the 

benefits of digital trade for American companies and their employees are at risk due to 

the rise of "digital protectionism," in which countries block cross-border data flows and 

require the use of local data centers to provide services. We have seen these barriers 

proliferate- in Europe, in Latin America , in the BRIGs economies, and elsewhere. 

Congress and the Administration have recognized this reality and responded - in a 

notably bipartisan way. With strong and bipartisan leadership from both Republicans 

and Democrats in Congress, digital trade was included as a key negotiating objective 

for the United States when Trade Promotion Authority was passed last year. 

The Obama Administration responded and delivered what Congress sought- and then 

some. In the Trans-Pacific Partnership, the United States has negotiated the most farreaching digital provisions found in any trade agreement. These provisions are truly 

groundbreaking, and they enjoy very broad-based support. TPP is important because it 

will ensure that digital barriers cannot take root in 12 economies that account for nearly 

40% of the world's GOP. 

But TPP is equally important in that it sets a vital precedent for digital trade provisions in 

future trade agreements, including the Transatlantic Trade and Investment Partnership 

(TTIP) and the Trade in Services Agreement (TiSA). 

If the United States wants to lead the technological race in the 21 51 Century, it must be 

at the forefront of writing the digital "rules of the road." Why? Because digital trade 

holds the potential to create tremendous growth for the United States and the world - as 

long as our trading partners do not impose barriers that destroy economic opportunities 

before they are created. Because we are the leaders in this space, American 

companies have the most to lose from digital protectionism. 

Data touches each of our lives, every day. America is at the forefront of data-driven 

innovation, and we are fostering an open and competitive global digital economy. Our 

4 
37 

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22164.030

talented entrepreneurs and engineers are poised to unleash data not just to facilitate 

your business trip to Brussels - but to make life better for everyone. By negotiating 

trade rules to keep data flowing freely across borders, the United States is once again 

leading the global economy toward a more prosperous, open, and interconnected 

future. 

Thank you for this opportunity. I look forward to your questions. 
38 

Chairman REICHERT. Mr. Beckerman. 

STATEMENT OF MICHAEL BECKERMAN, PRESIDENT AND CEO, 

INTERNET ASSOCIATION 

Mr. BECKERMAN. Thank you, Mr. Chairman and Ranking 

Member, Members of the Committee. I appreciate the opportunity 

to testify on digital trade. 

My name is Michael Beckerman, and I am president and CEO 

of the Internet Association. Internet Association represents nearly 

40 of the world’s leading Internet companies. And our mission is 

to foster innovation, promote economic growth, and empower people 

through the free and open Internet. 

I will focus my testimony this morning on two key points. The 

first being that the importance of the effective digital trade policies 

will provide a frictionless access to global markets. And second, I 

will talk about the Internet Association’s trade policy recommendations that I think will help grow the economy. And I ask that my 

full written testimony be submitted for the record. 

Internet platforms are the global engine of the innovation economy. The Internet sector represents an estimated 6 percent of U.S. 

GDP in 2014, totaling nearly $1 trillion and nearly 3 million American jobs. In addition to the economic contribution to the Internet 

industry, our member companies are transforming the way we do 

business at home and abroad by lowering barriers to entry and providing unprecedented growth opportunities for American businesses, large and small, and entrepreneurs. 

The Internet, I believe, is the greatest American exporter of the 

21st century, and cross-border trade is no longer only defined by 

shipping containers or freight lines. Today, trade is just as likely 

to be data flowing freely across borders or even a swipe of an app. 

In addition to borne Internet industries, the Internet is yielding 

dramatic benefits for traditional industries that have nothing to do 

with technology at all. In a recent study, we found that more than 

75 percent of the economic value that has been generated from the 

Internet is being captured by companies in traditional industries. 

Many of them are small businesses from agriculture to manufacturing and beyond. And it is no accident that many of the world’s 

leading Internet companies have been born and are scaled here in 

the United States, something that we should be proud of and encourage. 

But while the Internet has become a major driver of economic activity and global growth around the world, governments have continued to engage in harmful policies that we think need to be addressed. These include activities that block and censor content or 

mandate that data be stored locally. These activities directly 

threaten the free and open nature of the Internet and act as digital 

protectionism that stifles trade and investment. 

The ability of Internet platforms to export innovative online services to new markets is also dependent on a foreign country’s ability 

to promote balanced and equitable enforcement of intellectual property rights. Without adequate limitations and exceptions in copyright law, such as fair use, the Internet industry would face significant barriers to entry in foreign markets, and U.S. creators would 

lack sufficient freedom to create and distribute new works abroad. 

39 

Outside the area of intellectual property, intermediary liability protections, reflected in Section 230 of the Communications Decency 

Act, provide the backbone of Internet policy by enabling U.S. companies to host user-generated content without being held liable. 

The Internet ecosystem flourishes when users and content creators are empowered through an open architecture that promotes 

free expression and unrestricted exchange of ideas and information. 

The Internet Association strongly supports including intermediary 

liability protections and trade agreements like TiSA and others to 

promote e-commerce and democratic discourse. 

Historically, pro-Internet policies have been absent from trade 

agreements. While we recognize there may be a diversity of views 

on TPP, we feel that the TPP does acknowledge the benefits of the 

full balance of copyright law, requiring countries to adopt innovation critical limitations and exceptions, as well as safe harbors to 

protect the basic functionality of the Internet. The TPP also promotes a more inclusive trade economy by supporting the ability of 

small businesses to use the Internet to serve customers and users 

in key markets globally by streamlining the customs process and 

increasing the de minimis limits for small businesses. 

We believe that the true test of any trade agreement should be 

judged by its implementation. And we look forward to working with 

both the Committee and the administration to ensure that digital 

trade provisions in TPP and other agreements thoughtfully are implemented. 

And finally, as I close, we hope that the Committee will continue 

to work closely with the Internet community to find ways to create 

a more inclusive system for negotiating trade agreements, such as 

creating a chief digital trade negotiator that will better reflect the 

realities of today’s digital Internet economy. 

And with that, I want to thank you for having me testify today. 

And I look forward to any questions the Committee may have. 

Chairman REICHERT. Thank you. 

[The prepared statement of Mr. Beckerman follows:] 

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United States House of Representatives 

Conunittee on Ways and Means 

Subconunittee on Trade 

Hearing on Expanding U.S. Digital Trade and Eliminating Barriers to 

U.S. Digital Exports 

Testimony 

by 

Michael Beckerman, President & CEO 

Internet Association 
41 


22164.032

Chairman Reichert, Ranking Member Rangel, and Members of the Subcommittee on Trade, 

thank you for the opportunity to testifY today on "Expanding U.S. Digital Trade and Eliminating 

Barriers to U.S. Digital Exports." My name is Michael Beckerman and I am the President and 

CEO of the Internet Association. 

The Internet Association represents nearly 40 of the world's leading internet companies.' Our 

mission is to foster innovation, promote economic growth, and empower people through the free 

and open internet. As the voice of the world's leading internet companies, our job is to ensure 

that all stakeholders understand the benefits the internet brings to our economy. 

Today, I will address the following points in my testimony: 

1. The internet is revolutionizing our economy, with the internet sector contributing to 

economic growth and opportunity by facilitating exports for Small and Medium-sized 

Enterprises and traditional businesses. 

2. The growth of the internet is underpinned by strong laws and policies in the United 

States that enable the free flow of information, create a balanced copyright framework 

that unleashes opportunities for creators and innovators, and include clear intermediary 

liability protections that enable internet services to provide frictionless access to global 

marketplaces for businesses of all sizes. 

1 Members of the Internet Association include Airbnb, Amazon, Coinbase, Door Dash, Drop box, 

eBay, Etsy, Expedia, Facebook, FanDuel, Google, Groupon, Handy, lAC, Intuit, Linkedln, Lyft, 

Monster Worldwide, Netflix, Pandora, Pay Pal, Pinterest, Practice Fusion, Rackspace, reddit, 

Salesforce.com, Snapchat, Spotify, SurveyMonkey, Ten-X, TransferWise, TripAdvisor, Turo, 

Twitter, Uber Technologies, Inc., Yahoo!, Yelp, Zenefits, and Zynga. 

2 
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22164.033

3. While the United States leads the world in its digital policy framework, U.S. 

companies face significant market access barriers in other countries that lack similar 

frameworks. We have seen a rising tide of digital protectionism and bad policy 

frameworks abroad that threaten to undermine the internet's growth. 

4. To combat this trend, the United States needs a trade policy that is better oriented to 

the digital economy- both in future trade agreements and in the implementation of the 

Trans-Pacific Partnership (TPP). In particular, the U.S. must ensure that balanced 

intellectual property laws, limitations on liability for online intermediaries, streamlined 

trade facilitation and customs procedures, and rules on the free flow of information and 

data across borders are applied and vigorously enforced in current and future trade 

agreements. 

I. Introduction to the Internet Industry 

Internet platforms are the global engine of the innovation economy, with the internet sector 

representing an estimated 6 percent of U.S. GOP in 2014, totaling nearly $967 billion, and 

accounting for nearly 3 million American jobs. Internet Association's member companies are 

transforming the way we export and do business at home and abroad by lowering barriers to 

entry and providing unprecedented growth opportunities for American businesses and 

entrepreneurs. The internet sector itself is a major U.S. export industry- the majority of many of 

our companies' users and revenues come from outside the U.S.- while also transforming trade 

for small, medium, and large businesses. 
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22164.034

Cross-border trade is no longer defined by shipping containers and freight lines - but is now just 

as likely to be data flowing freely across borders. Buyers and sellers from around the globe are 

now connected instantaneously through the internet. Small businesses and entrepreneurs are 

harnessing the power of the internet to reach new markets and connect with new customers. 

Businesses of all sizes are taking advantage of the benefits the digital economy provides by 

embracing internet-enabled technology. In addition to 'born-internet' industries, the internet is 

yielding dramatic benefits for traditional industries. A recent study found that more than 75 

percent of the economic value created by the internet is captured by companies in traditional 

industries, many of them small businesses 2 It is safe to say that nearly every country, sector, 

and all types of businesses are using the internet in some form to increase efficiency, growth, and 

competitiveness. 

Our members are introducing international audiences to American musicians, writers, and 

directors through services like SpotifY, Pandora, and Netflix, promoting small hospitality 

providers through TripAdvisor and Yelp, and are revolutionizing how entrepreneurs source 

materials and supply their customers through Amazon. Frictions in international marketing are 

also alleviated by platforms like eBay and Etsy that make sellers' products fully searchable. 

Cloud services from Amazon, Drop box, Google, Rackspace, Intuit and others enable 

entrepreneurs and small businesses to instantly build a global network footprint, running 

2 McKinsey Global Institute, "Internet matters: The Net's sweeping impact on growth, jobs, and 

prosperity,' May 2011 (http://www.mckinsey.com/industries/high-tech/our-insights/internetmatters) 

4 
44 


22164.035

anything from an e-commerce site to a bank to a genomics company without building their own 

IT infrastructure. And platforms like Face book Live and You Tube are giving entrepreneurs the 

ability to showcase their products to a global audience, all in real time. 

In the United States, the open, technology neutral, innovation without permission ecosystem of 

the internet has grown exponentially since it was first used commercially in the early 1990s. 

Between 2004 and 2009, the digital economy was the fastest growing sector of the U.S. 

economy, representing 15 percent of U.S. GDP3 Today, 73 percent of Americans are using the 

internet on a daily basis,' while over $8 trillion is exchanged through global e-commerce each 

year. The United States is a net exporter of internet related products and services and according 

to the United States International Trade Commission, U.S. exports of digitally enabled services 

(one measure of international digital trade) grew from $282.1 billion in 2007 to $356.1 billion in 

2011 , with exports exceeding imports every year 5 In its short history, the internet as a universal 

driver of trade and global growth has proven to be highly beneficial to the United States 

economy, empowering and democratizing consumers and users worldwide. 

3 McKinsey Global Institute, "Internet matters: The Net's sweeping impact on growth, jobs, and 

prosperity,' May 2011 (http://www.mckinsey.com/industries/high-tech/our-insights/internetmatters) 4

Pew Research Center, "One-fifth of Americans report going online 'almost constantly"' by 

By Andrew Perrin, http://www.pewresearch.org/fact-tank/20 15/ 12/08/one-fifth-of-americansreport-going-online-almost-constantly/ 5 United States International Trade Commission Investigation No. 332-531 USITC Publication 

4415 July 2013 Digital Trade in the U.S. and Global Economies, Part , July 2013, 

(https://www. usitc.gov/publications/332/pub4415 .pdf) 

5 
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22164.036

To put the power of the internet as an export platform in perspective, over 67 percent of eBayenabled SMEs in Washington State are selling to 4 or more continents and are selling, on 

average, in eighteen foreign market destinations 6 In New York City, StereoBuyers, known to its 

eBay customers as High End Audio Auctions, is a locally owned, family-run business focused on 

buying and selling high-end, pre-owned HiFi audio equipment. The seed of StereoBuyers was 

planted in the mid 1990s. As a college student, Adam Wexler wanted a high end stereo, but 

could not afford one. That's when he got the idea to buy and sell stereo equipment that had been 

traded into a local HiFi shop. After graduation, Adam continued to run StereoBuyers part time 

until2009, when he left his full-time job a one of Manhattan's top high-end AV salesmen and 

designers to pursue the business full-time. StereoBuyers exports about 30 percent of its 

products. 

Another example of how platforms are helping SMEs ease marketing frictions is Phil Ford's 

"Bone Suckin' Sauce" from Raleigh, North Carolina. Phil initially stumbled upon his sauce in 

1987 when he attempted to reproduce his mother's recipe. After some encouragement, he 

brought the sauce to market in 1992, which has since won numerous awards including receiving 

an A+ rating by Health Magazine- the only barbecue sauce to receive this rating. Today, the 

company exports its products to over 50 countries with 15 to 20 percent of its business coming 

from these exports. Both domestic and export sales are steadily growing. The company 

attributes an increase in sales of its product to its Face book engagement. To attract new 

6 The State of Small Online Businesses in America: Results from eBay's 5-Year Study 

(http://www.ebaymainstreet.com/sites/default/files/vf lowres/eBay washington Small-OnlineBusiness-Factsheet lores.pdf) 

6 
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customers, the company promoted its Facebook post- "Which is better on the grill? Fish, 

chicken, vegetables, or steaks?"- to encourage conversation among fans. As a result of the 

Facebook ads, online store sales jumped 83 percent, online store visitors increased by 28 percent, 

and the company saw a nine-fold increase in engagement with the promoted posts versus the 

non-promoted posts. Patrick Ford, the International Marketing Director of Ford's Gourmet 

Foods, acknowledged the importance of the company's Face book page in helping drive sales 

when he said, "there's no other place where we can reach so many of our customers and place 

our product right in front of them." 

II. The Free and Open Internet - Why Does Trade Policy Matter? 

Internet platforms have transformed trade- but for the internet to continue to provide frictionless 

access to global marketplaces for businesses of all sizes, and for the U.S. internet sector itself to 

continue to grow, trade policy must keep up with this fundamental transformation. In particular, 

we need trade policy that recognizes and advances the open architecture of the internet, which 

has created new opportunities for cross-border trade and investment, enabling small businesses 

around the world to connect with customers and suppliers in the global market without building 

their own multinational supply chains. An internet-connected entrepreneur can now sell 

products and services across borders at the click of a button or the tap of a screen. With the help 

of internet platforms, small businesses grow up to four times faster than businesses that do not 

embrace the web, create twice as many jobs, are 50 percent more likely to be exporters, and 

7 
47 


22164.038

bring in twice as much revenue through exports as a percentage of sales7 Additionally, 97 

percent ofU.S.-technology-enabled commercial sellers engage in exporting; reaching nearly 30 

markets whereas traditional U.S. businesses that export reach on average two to three different 

markets per year 8 

The rise of this new generation of exporting platforms has, perhaps unsurprisingly, been 

accompanied by the rise of new forms of digital protectionism- which harms both internet 

services and the small businesses that rely on these services to reach a global customer base. We 

have seen a significant increase in the number of countries that are imposing data and 

infrastructure localization requirements. We have seen European countries enact so-called 

"ancillary copyright laws" that forbid activities clearly allowed under U.S. law and deny U.S. 

stakeholders effective access to those markets. Countries like China, India, Russia, and Ukraine 

have sought to hold intermediaries liable for content posted by users, or have required 

intermediaries to block, censor, monitor, and filter communications and content that travels over 

their services. And many countries lack flexible copyright rules such as fair use- which creates 

significant barriers to entry for U.S. companies that are hoping to do business in those markets. 

This matters for trade, because 95 percent of consumers are now outside of the United States. In 

order to ensure the continued growth of the internet, and to ensure that U.S. exporters are able to 

7 Enabling Traders to Enter and Grow on the Global Stage, 2012 

(https://www.ebaymainstreet.com/sites/default/files/EBAY US-Marketplace FINAL.pdD 8 Ibid. 

8 
48 


22164.039

reach over 3 billion internet connected consumers worldwide, the U.S. must push back against 

these market access barriers abroad. 

III. Supporting Policies that Encourage the Growth of the Internet Worldwide 

This is where trade policy comes into play. The sustained growth of the internet as a global 

vector for innovation, trade, and commerce is made possible by laws and policies that preserve 

the vitality of an open and consumer-oriented internet environment- and trade agreements can 

help protect this environment by promoting a U.S.-style open innovation framework in other 

countries. 

It is no accident that many of the world's leading internet platforms have been born, scaled, and 

continually reimagined in the United States. Without adequate protection of foundational 

policies that have grown the innovation economy, internet industries and the businesses they 

support face barriers to market entry in foreign countries. These foundational policies should be 

fully reflected in our trade policy. 

For instance, the Internet Association strongly believes copyright policy in trade agreements 

must reflect the balanced framework in U.S. law, which provides not only strong protections and 

enforcement, but also robust and flexible limitations and exceptions, including fair use and 

copyright safe harbors. Without these flexibilities, a website could not provide snippets and 

links to other websites; an internet service could not "cache" copies of files, which allows an 

internet browser to respond to inputs in a matter of milliseconds; and artists could not produce 

9 
49 


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mash-ups of existing content to create new works. These policies are crucial to continued 

economic growth: industries relying on fair use generate total annual revenue of $4.7 trillion, 9 

and contribute about $2.2 trillion in added value-just over 16 percent of total U.S. GDP. 10 

In addition, outside of the area of intellectual property, the intermediary liability protections 

reflected in Section 230 of the Communications Decency Act (CDA) enable U.S. companies to 

host user-generated content without being held liable for such third party content- which fuels 

content creation at home and is crucial to the free flow of information abroad. The internet 

ecosystem flourishes when users and content creators are empowered through an open 

architecture that promotes free expression and unrestricted exchange of ideas and information. 

Online intermediaries - big and small - connect users to goods and services, facilitate social 

interactions, and drive economic activity across borders. 

The Internet Association supports including Section 230 of the CDA in trade agreements to 

promote e-commerce and democratic discourse. Reliable intermediary liability protections have 

a significant impact on platforms like eBay, Etsy, Google Search, Yelp, Y ouTube, and 

TripAdvisor that are helping U.S. small and medium-sized businesses reach global customers. 

Inadequate intermediary liability laws make it impossible fore-commerce platforms to operate 

and serve as trade-enabling marketplaces. For instance, without proper intermediary liability 

9 Thomas Rogers & Andrew Szamosszegi, Comp. & Commc'ns Indus. Ass'n, Fair Use in The 

U.S. Economy: Economic Contributions oflndustries Relying on Fair Use 20 cht.l (2011), 

http://bit.ly/lMioZnp. 10 Ibid. 

10 
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rules, an internet service would be unable to maintain open user review and customer feedback 

mechanisms that businesses need in order to gain support for their products in new markets. 

For example, in Turkey, internet services face liability if users post blasphemous, discriminatory, 

or insulting content, making it very difficult to run an e-commerce or other internet platform. 

Content-filtering requirements and other liability risks in China "pose a significant burden to 

foreign suppliers, hurting both internet sites themselves, and users who often depend on them for 

their businesses."" Russia has ordered all ofWikipedia to be blocked due to problematic content 

on a single page. Under India's intermediary liability rules, "foreign companies providing 

internet services are forced to choose between needlessly censoring their customers and 

subjecting themselves to the possibility oflegal action."12 

Internet-enabled small businesses also rely on simplified customs procedures that help facilitate 

the movement of goods and services across borders. The Internet Association supports policies 

that encourage trading partners to increase arbitrarily low de minimis thresholds to decrease 

trade barriers experienced by internet-enabled businesses. Additionally, provisions ensuring 

duty free treatment for all technology goods and services and the limitation of non-tariff barriers 

that can be imposed on technology and other goods would help internet-enabled small businesses 

engage in global trade and commerce. 

11 2016 National Trade Estimate Report on Foreign Trade Barriers (NTE), 

(https ://ustr. gov /sites/ defaul t/files/20 16-NTE-Report-FINAL. pdf) 12 Ibid. 

11 
51 


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The internet is a borderless medium. Movement of electronic information across borders is 

critical to global businesses, but the rules governing flows of digital goods, services, and data are 

uncertain. Consistent with these goals, the Internet Association supports the inclusion of 

provisions in trade agreements and implementing legislation that protect legitimate, cross-border 

information flows, including language that promotes compatible privacy regimes and measures 

that link market access or other commercial benefits to local infrastructure and investment. 

IV. Building and Implementing a Trade Framework that Advances the Digital 

Economy 

As the Committee considers policies that will help encourage digital trade, the Internet 

Association supports efforts that promote strong international rules and balanced intellectual 

property laws, limit liability for online intermediaries, streamline trade facilitation and customs 

procedures, and encourage the free flow of information and data across borders- including for 

cross-border financial services platforms. We believe the United States should continue to 

negotiate, implement, and vigorously enforce trade agreements that promote the free and open 

internet. 

Historically, pro-internet policies have been absent from trade agreements. While we recognize 

there is a diversity of views on the TPP, the agreement acknowledges the benefits of the full 

balance of copyright law - requiring countries to adopt innovation-criticallimitations and 

exceptions, as well as safe harbors that protect the basic functionality of the internet, social 

12 
52 


22164.043

media, and online platforms. For too long, U.S. trade agreements have failed to reflect the 

balance of U.S. copyright law, under which individual creators, rights holders, internet platforms 

and users have all benefitted. The TPP also promotes a more inclusive trade economy by 

supporting the ability of small businesses to use the internet to serve customers and users in key 

markets, while also allowing for the transfer of information across borders, prohibiting the use of 

inefficient localized computing facilities. Although we believe the true test of any trade 

agreement should be judged on its implementation, the Internet Association believes the TPP is a 

step in the right direction. We look forward to working with the Committee and the 

Administration to ensure the digital trade provisions in the TPP are thoughtfully implemented. 

The Committee and the Administration should also ensure that all TPP parties: 

• Adopt or maintain comprehensive ISP safe harbor provisions that cover the full range of 

service providers and functions, with prohibitions on monitoring duties and strong due 

process protections. 

• Adopt a comprehensive framework of copyright exceptions and limitations for the digital 

economy, modeled on the multi-factor balancing test in 17 USC§ 107, or other flexible 

rules that allow for ongoing digital innovation, including in commercial contexts. 

The Internet Association is also closely monitoring the Trade in Services Agreement (TISA) 

negotiations. TISA represents one of the best opportunities to liberalize international rules to 

expand trade in services between 23 members of the World Trade Organization, representing 70 

percent of world trade in services. Specifically, the internet industry supports efforts to include 

13 
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22164.044

an intermediary liability provision in TISA that reflects Section 230 of the CD A. This provision 

would help unleash growth and investment in internet services by providing a safe harbor from 

liability rules that would otherwise hold intermediaries liable for content posted by their users. 

The intermediary liability protections found in Section 230 of the CDA are a perfect example of 

future proofed legislation that allowed internet platforms to scale and spurred unprecedented 

economic growth and innovation. Section 230 of the CDA excludes intellectual property and 

criminal issues, which are more appropriately addressed in other models. We look forward to 

working with U.S. trade negotiators and the Committee as TISA negotiations come into focus. 

The Internet Association also welcomes the recent breakthrough on the U.S.-EU Privacy Shield. 

The Privacy Shield represents a positive outcome and a win for innovation and growth both here 

and in the EU. We commend Congress, the Administration, and the European Commission for 

taking the necessary steps to ensure information and data will continue to flow across the 

Atlantic. Absent an agreement, many U.S. small businesses and consumers could have 

experienced significant challenges in the EU market. Additionally, as Congress and U.S. trade 

negotiators review policies the EU is considering to unity their digital market, we caution against 

policies that may turn into disguised protectionism against innovative U.S. internet platforms. 

We believe the best path forward for digital growth and jobs is a positive reform agenda that 

promotes the free and open internet on both sides of the Atlantic. There is no reason why digital 

trade and a digital market within the EU cannot be a win-win for both the U.S. and the EU. 

14 
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Finally, we hope the Committee will continue to work closely with the internet community to 

finds ways to create a more inclusive system for negotiating trade agreements. Our industry 

supports increased transparency and will continue to seek reforms that give all stakeholders a 

meaningful voice in the process. 

V. Conclusion 

The internet industry is committed to working with Congress and U.S trade officials to ensure 

the internet remains the greatest American export of the 21" century. Future trade agreements 

should continue to take into account the economic benefits the internet industry brings to every 

sector of the economy. As I highlighted in my testimony, internet platforms are intrinsically 

trading platforms that give U.S. small businesses, entrepreneurs, developers, and startups the 

tools they need to compete and win in the fastest growing markets in the world. Breaking down 

barriers to digital trade and supporting pro-internet policies that promote the free and open 

internet are critical to the long-term growth of our sector. As the Committee continues to 

analyze policies that support the growth of internet-enabled trade, I look forward to working with 

Members of this Committee to address our shared goals and priorities. 

With that, let me thank you again for inviting me here today to testify on behalf of the internet 

industry. I am happy to answer any questions you may have. 

15 
55 

Chairman REICHERT. Ms. Shukla, you are recognized. 

STATEMENT OF KAVITA SHUKLA, FOUNDER AND CEO, 

FENUGREEN LLC 

Ms. SHUKLA. Chairman Reichert, Ranking Member Rangel, and 

Members of the Committee, thank you so much for the opportunity 

to be here today and to share my story. 

My name is Kavita Shukla. I am the founder and CEO of 

Fenugreen FreshPaper, which is a social enterprise taking on global food waste with a really simple innovation. FreshPaper actually 

began as my middle school science project. It was inspired by a trip 

to visit my grandparents in India. And when I accidentally drank 

some unfiltered tap water, my grandmother gave me a homemade 

mixture of spices as a remedy. And when I didn’t get sick, I became 

really curious. 

So back home in Maryland, I started tinkering around with different spices and jars of dirty pond water. And I started to observe 

that it seemed like some of the spices were slowing down the 

growth of bacteria and fungus. And one day, when I was at the grocery store with my mom and I saw some moldy strawberries, I 

began to wonder if perhaps I could apply my spice mixture to keeping food fresh. 

And so to make a long story short, after spending most of my 

high school years meticulously rotting fruits and vegetables in my 

garage, I created FreshPaper, infused only with organic spices that 

can keep food fresh for up to two to four times longer. 

Today, we lose more than 25 percent of our world’s entire food 

supply to spoilage. FreshPaper poses a really simple and sustainable solution to the massive global challenge of food waste. 

I was a senior in high school when I found out that I would be 

issued a patent for FreshPaper. It was a pretty unlikely outcome 

to my story, possible only in this country. I was aware, even at that 

age, that my grandmother, with all of her brilliance, she never had 

the opportunity to pursue her ideas. And here I was 17, I had a 

patent, and I was on my way to Harvard to pursue mine. 

So as soon as I got to college, I set out to build a nonprofit. But 

what I really ended up learning is how hard it can be to give something away for free. And like many aspiring entrepreneurs, I started to believe that I would need more experience, more money, more 

resources, just more than I had and more than I was. And I 

stopped believing that I alone would ever be enough to bring my 

idea out into the world. 

So it wasn’t until the summer of 2011, nearly a decade after I 

first started working on my science projects, that I finally had the 

courage to take just one more step with my idea. And I decided to 

take it to my local farmers market in Cambridge, Massachusetts. 

I stayed up all-night and handmade a batch of FreshPaper in the 

kitchen of my tiny studio apartment. And early the next morning, 

my cofounder and I stood on the streets just handing out sheets to 

anyone who would stop by. Our hope, really, was to help our local 

community have greater access to fresh, healthy food. 

But as the weeks went on, we were amazed by the response. 

What we really started to hear from people was that FreshPaper 

was making it possible for them to afford eating fresh, healthy food 

56 

and feeding it to their families. And so I was inspired to think a 

little bit bigger. 

I set up an online store, and on a whim we enabled international 

markets. In less than a minute, FreshPaper was available worldwide. And while we were only selling FreshPaper in one local store, 

the Harvest Co-op, we were shipping FreshPaper to places like 

Spain, Australia, Canada, the U.K., Indonesia, Japan, and Brunei. 

I now joke that we went global by accident. With just a few errant 

clicks, my farmers market stand had access to an almost infinite 

global market. 

But, of course, at the time we had no idea how to ship globally. 

But at every roadblock we Googled our way out, and we discovered 

that there were digital tools to actually make this a reality. We 

found that PayPal could collect foreign payments, that Intuit 

QuickBooks could help us keep track of our earnings, and that UPS 

had a program, Mail Innovations, that really simplified customs. 

So even though we had started with less than a thousand dollars, we had no outside funding, no marketing budget, and really 

no experience, within a few months, we were carting wheelbarrows 

of orders to our local post office and shipping our made-in-USA 

product to places I could have never imagined. Those international 

orders helped us keep our fledgling business alive, giving us time 

to build our customer base locally. 

Today, FreshPaper is on the shelves of some of the largest retailers in the world, from Whole Foods to Walmart. And we are working with international distributors to bring FreshPaper to more retailers, farmers, and families across the globe. And just recently, 

FreshPaper became the first product to be launched globally by 

Amazon as part of Amazon Launchpad, which made our simple 

idea available in 180 countries overnight. The Internet took my 

farmers market stand global. 

But my story is not unique, and I don’t believe that it should be. 

I have seen the power of international markets in an open global 

Internet. I am here because I believe we have to reduce barriers 

to unleash our country’s entrepreneurial talents and to encourage 

small business owners to think global from day one. 

Entrepreneurs live to work hard, to hustle, to spend sleepless 

nights figuring out how to make the impossible a reality, to push 

through resistance, the naysayers, and the doubt. And in the unlikely event of our success, share the benefits with our communities, to create American jobs, to build factories, and to design organizations that will outlive us. But we cannot do it alone. We need 

your help. Give us access. Help us reduce barriers to the spread of 

our ideas, and we will work hard to figure out the rest. 

Thank you so much for the opportunity to be here. 

Chairman REICHERT. Thank you. 

[The prepared statement of Ms. Shukla follows:] 

57 


22164.046

Testimony before the House Ways & Means Subcommittee 

on Trade 

July 13, 2016 

Hearing on Expanding U.S. Digital Trade and Eliminating Barriers to U.S. 

Digital Exports 

Kavita Shukla 

Founder and CEO 

Fenugreen FreshPaper 

1. About Fenugreen Fresh Paper 

Good morning. Chairman Reichert, Ranking Member Rangel, and members of the 

Committee, thank you for the opportunity to be here today. 

My name is Kavita Shukla. I'm the founder and CEO of Fenugreen FreshPaper, a social 

enterprise taking on global food waste with a simple innovation. 

Five years ago, I set up a stall at my local farmer's market with the hope of helping my 

local community have greater access to fresh, healthy produce. I never could have 

imagined that within a few months, my idea would be shared across the globe, and 

that one day, my invention would land on the shelves of some of the largest retailers in 

the world --from Whole Foods to Walmart. I'm here to share the story of how 

accessing global markets made all of this possible. 

This was my idea: Fresh Paper, a simple piece of paper infused with organic spices that 

keeps fruits & vegetables fresh for up to 2-4 times longer. A simple, sustainable 

solution to the massive global challenge of food waste. 

Fresh Paper began as a middle-school science project, inspired by my grandmother. 

After immigrating to the United States with my family as a child, I returned to visit my 

grandparents in India, and accidentally drank some unfiltered tap water. My 

grandmother gave me a homemade mixture of spices as remedy, and I ended up not 

getting sick. That experience sparked my curiosity, and when I got back home to 

Maryland, I was inspired to start a science project to learn more about the spices my 

grandmother used. After tinkering around in my garage with jars of dirty pond water 

and spices, I discovered that some of the spices seemed to stop the growth of bacteria 

and fungus. 

One day, after seeing moldy strawberries while grocery shopping with my mom, I 

wondered if my spice mixture could keep produce fresh for longer. To make a long 
58 


22164.047

story short, after spending most of high school meticulously rotting fruits and 

vegetables, I created FreshPaper. 

FreshPaper ended up winning a 1'' place award at the Intel International Science Fair, 

and I was a senior in high school when I was issued a patent for Fresh Paper. It was an 

unlikely outcome to my story, possible only in this country- my grandmother with all of 

her brilliance never had the opportunity to pursue her ideas, and at 17, I had a patent 

and was on my way to Harvard to pursue mine. 

I was so excited about how Fresh Paper could help people like my grandmother in 

areas like the village where she was from, and I couldn't wait to get my invention out 

into the world. I learned that, while the world 's farmers harvest enough food to feed the 

planet, almost 800 million people go hungry every day,' and that over 1 billion people 

live without access to refrigeration.' Fresh Paper, I believed, could help address global 

food waste and hunger. 

As soon as I got to college, I set out to build a non-profit, and ended up learning how 

hard it can be to give something away for free. After trying and failing over and over, 

my friends and advisers suggested that I consider a more "realistic" career path. Like 

many aspiring entrepreneurs, I was told that I needed more experience, more degrees, 

more money- more than I had, and more than I was. So I gave up. 

In the summer of 2011 , more than a decade after I first started working on my science 

project, I decided to give my idea, and myself, one last chance. 

I stayed up all night making a batch of FreshPaper by hand in the kitchen of my tiny 

studio apartment, and early Saturday morning, a friend and I set up a stall at our local 

farmer's market in Cambridge, Massachusetts. We stood in the street handing out 

sheets to passersby. 

In the weeks and months that followed, we were amazed by the response. People 

started telling us, "Fresh Paper makes it possible for me to afford feeding my family 

fresh fruits and vegetables." As I began to realize that my small sheet of paper was 

having an impact on our local food system, I was inspired to think bigger. 

1 United Nations Food and Agriculture Organization, International Fund for Agricultural Development, 

World Food Programme, The State of Food Insecurity in the World 2015. Meeting the 2015 international 

hunger targets: taking stock of uneven progress. Rome, FAO. 

'International Energy Agency, Key World Energy Statistics 2015. OECD/IEA 2015 
59 


22164.048

2. About our global journey 

We created a very basic online store, and on a whim, we enabled international markets. 

In less than a minute, Fresh Paper was available worldwide. While we were selling 

Fresh Paper in just one local store, the Harvest Co-Op, we were shipping FreshPaper 

across the world to places like Spain, Australia, Canada, the UK, Indonesia, Japan, and 

Brunei. 

I now joke that that we went global by accident. With just a few errant clicks, my 

farmer's market stand now had access to an almost infinite global market. 

Of course, we had no idea how to ship globally- at the time, we didn't even know how 

to make a pallet. But at every roadblock, we Googled our way out, and through trial 

and error found digital tools to make our global business a reality. We found out that 

PayPal could enable us to collect foreign payments and convert currencies, that Intuit 

Quickbooks could help us keep track of our earnings, and discovered that UPS Mail 

Innovations simplified the customs process. 

We had started with less than a $1000- we had no outside funding, no marketing 

budget, and no experience. But within a few months, we were carting wheelbarrows of 

orders to our local post office, and shipping our made in the USA product to places I 

could never have imagined. Those international orders helped keep our fledgling 

business alive, giving us time to build our customer base locally. 

Once we started shipping out these international orders, Fresh Paper started to be 

featured by newspapers and media outlets around the globe. I was invited to speak 

about FreshPaper in Japan, Denmark, France, the UK, and Switzerland. I found myself 

addressing the World Trade Organization in Geneva, and on stage with Sir Richard 

Branson at the Global Entrepreneurship Congress in Liverpool. 

Fresh Paper even won the world's largest prize for design (the INDEX: Design to 

Improve Life Award), previously awarded to Apple and Tesla, which provided us with a 

crucial 100,000 euro prize that helped us scale our production. Last summer, 

Fresh Paper became the first product ever to be launched globally by Amazon as part 

of Amazon Launchpad, a program designed for startups, making our simple idea 

available in 180 countries overnight. The Internet took our farmer's market stand 

global. 

Today, FreshPaper is made in factories in the Midwest and Maryland, and we're 

working with international distributors to launch in retailers across the globe, and to 

reach more farmers and families worldwide. We've seen the power of international 

markets. We are here today because of an open global Internet. But the excessive 

costs, paperwork, and logistics to access these global markets are still challenges that 

we and other entrepreneurs face every day. 
60 

f 


22164.049

3. The role of government policy in eliminating barriers to digital exports 

I'm here because I believe we must reduce barriers to unleash our country's 

entrepreneurial talents, innovations, and energy, and encourage small business owners 

to think global from day one. 

My story is not unique. Nor should it be. I often think of the jam-seller who set up a stall 

at her local farmer's market. The single mom I met who was making ends meet by 

selling items on eBay. The young programmer dreaming up the next big app. 

Entrepreneurs across this country drive our economy with their ingenuity, with their 

grit, with their optimism, and with their success. 

But we cannot do it alone. 

We are happy to work hard, to hustle, to spend sleepless nights figuring out how to 

make the impossible a reality, to push through the resistance, the naysayers, and the 

doubt - and, in the unlikely event of our success, share the benefits with our 

communities, create American jobs, build factories, and design organizations that will 

outlive us. 

We need your help. 

Ensure that an open, global Internet is available so that our partners, customers and 

community from around the world can connect with us, and so that we can use 

technology to operate our business on a global basis. Utilize trade agreements and 

other platforms to reduce tariffs on the products we make, and to simplify customs 

procedures. Help entrepreneurs like me understand the resources that the U.S. 

Government has for startups looking to take their business global. 

Give us access and reduce barriers to the spread of our ideas, and we'll work hard to 

figure out the rest. 

Thank you so much for the opportunity to testify. 
61 

Chairman REICHERT. Mr. Ahmed. 

STATEMENT OF USMAN AHMED, HEAD OF GLOBAL PUBLIC 

POLICY, PAYPAL INC. 

Mr. AHMED. Chairman Reichert, Ranking Member Rangel, and 

Members of the Subcommittee, I would like to thank you all for 

giving PayPal the opportunity to testify today on the important 

topic of digital trade and its impact on U.S. exports. 

PayPal operates an open, secure, and technology agnostic platform that businesses use to transact with customers around the 

world. With our 170 million customer accounts and 14 million merchant accounts, PayPal is a truly global payments platform that is 

available to people in more than 200 countries, allowing customers 

to get paid in more than 100 currencies. 

About 25 percent of the volume on PayPal is cross border. Our 

PayPal PassPort tool is a free online resource designed to educate 

and empower small businesses to expand their reach by uncovering 

new peak sales opportunities outside their own borders. PayPal’s 

purchase protection program offers cross-border buyers peace of 

mind by reimbursing the full purchase price plus any shipping 

costs if there are any complaints. And this includes the purchases 

of services as well as digital goods. We also offer a seller protection 

program, meaning that both the buyer and the seller can transact 

with confidence. This trust is essential to the digital marketplace. 

Finally, PayPal’s core innovation is security. PayPal does not expose the merchant or the consumer financial information, meaning 

that both sides of the transaction feel safe, particularly when 

transacting across borders. At PayPal we have sat at the center of 

the digital trade revolution since 1998. And this is a revolution 

that has profound impacts on the concept of trade as we know it. 

PayPal helps businesses like Home Depot, Uber, and Subway with 

their global transactions. But more importantly, we help hundreds 

of thousands of small businesses across the United States to go 

global. 

Traditionally, international trade was solely the domain of the 

largest businesses. But a small business can now use the Internet 

in combination with a host of online services providers to engage 

in trade at a geographic scale similar to the largest businesses. 

This democratization of trade has tremendously positive development, inclusion, and growth implications. 

Digital technology has helped business owners like Stan Carson 

from Wenatchee, Washington, who operates a sporting goods equipment store and employs 28 people, as well as Jamie Wankum from 

South Sioux City, Nebraska, who employs 10 people in his electronic business, to export their products to countries around the 

world. 

Over 65 percent of U.S. merchants that use PayPal and operate 

in digital trade, of our top merchants, 65 percent operate in digital 

trade. Compare this with numbers from the U.S. Department of 

Commerce, which finds that less than 1 percent of America’s companies export. When we surveyed 170 U.S. small- and medium-size 

enterprises that have an online presence, we found that those that 

engaged in digital trade had double the sales revenue of those who 

62 

only sold domestically. These amazing developments, though, are 

tempered by the barriers that limit the benefits of digital trade. 

In our survey of U.S. small businesses, we learned that shipping, 

regulatory compliance, and customs were the top barriers to small 

business cross-border commerce. Digital trade has also brought on 

a new wave of localization requirements, captured most poignantly 

by regulatory requests for digital companies to store data in country. Trade policy represents an opportunity to resolve some of these 

issues. 

The U.S. Government has already taken important steps to enhance the environment. The Congress passed the Customs Reauthorization Act, making it easier to move small e-commerce shipments across borders. This is actually an export promotion issue 

because U.S. online businesses often struggle with retail returns. 

The U.S. International Trade Commission has sought to measure 

the value of international trade, and the Commerce Department’s 

export.gov contains templates designed to educate small businesses 

on how to engage in digital trade. Moreover, the United States 

Trade Representative has been promoting important language on 

national treatment for cross-border financial services, as well as 

small business trade facilitation. But more can be done. 

Customs and duties regimes can be simplified. De minimis levels 

can be raised, and a prohibition on data localization requirements 

can be expanded to cover cross-border financial services. The U.S. 

must continue to look for opportunities to open up the market for 

digital trade and create rules that provide certainty for small businesses and consumers that engage in the cross-border digital marketplace. 

Thank you again for the opportunity to address this Committee 

on this important issue. And I look forward to answering any questions. 

[The prepared statement of Mr. Ahmed follows:] 

63 


22164.050

TESTIMONY OF 

Usman Ahmed 

Head of Global Public Policy 

PayPallnc. 

BEFORE THE 

United States House of Representatives 

Committee on Ways and Means 

Subcommittee on Trade 

Expanding U.S. Digital Trade and Eliminating Barriers to U.S. Digital Exports 

PRESENTED 

Longworth House Office Building, Room 1100 

July 13, 2016 

lO:OOAM 
64 


22164.051

I. Introduction- Who is PayPal 

Chairman Reichert, Ranking Member Rangel, and members of the Subcommittee, I would like 

to thank you all for giving Pay Pal Inc. the opportunity to testify today on the important topic of 

digital trade and its impact on U.S. exports. Pay Pal operates an open, secure and technology 

agnostic payments platform that businesses use to transact with their customers online, in 

stores, and increasingly on mobile devices. In 2015, 28% of the 4.9 billion payments we 

processed were made on a mobile device. With our 170 million consumer accounts and 14 

million merchant accounts, PayPal is a global payments platform that is available to people in 

more than 200 markets, allowing customers to get paid in more than 100 currencies, withdraw 

funds to their bank accounts in 57 currencies and hold balances in their PayPal accounts in 25 

currencies. 

Our company is a truly global business- with 47% of our gross revenue coming from activity 

outside the United States. But, PayPal is not just a global business based in the United States; it 

is actually a platform that enables hundreds of thousands of U.S. entrepreneurs, small 

businesses, as well as mid-size and large businesses, to reach customers around the world. The 

point of payment has traditionally been an area where transactions are abandoned. Customers 

need confidence that their payment will be handled securely and they want the comfort and 

convenience of paying in familiar currency, using their preferred method. Pay Pal can help 

merchants meet these consumer demands through our globally trusted brand, in particular 

when the merchant is located in a different country than the consumer. About 25% of our total 

payment volume is cross border trade. Our services enable a new kind of a global trade that is 
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truly beneficial for small businesses across America, from the local hardware store to the small 

software company selling an app around the world. The 2013 World Economic Forum (WEF) 

Enabling Trade report found that the use of technology platforms can reduce the burdens small 

businesses face when selling overseas, increasing cross-border small business sales by 60-80%.; 

PayPal is focused on efforts to promote digital trade. Our Pay Pal Passport tool is a free online 

resource designed to educate and empower small businesses to expand their global sales by 

uncovering new peak sales opportunities outside their own borders. We have partnered with 

the U.S. Department of Commerce to do webinars and in-person seminars designed to make 

small businesses aware of this free resource. PayPal 's purchase protection gives cross border 

buyers piece of mind by reimbursing the full purchase price plus any original shipping costs if 

there are any complaints; including purchases of services and digital goods. Finally, PayPal does 

not expose merchant or consumer financial information, meaning that both sides of the 

transaction feel safe and secure when engaging in a cross border sale. 

II. The Power of the Internet to Facilitate Trade 

The notion that the Internet has transformed the global economy is now well understood. The 

McKinsey Global Institute reports that the Internet accounts for 21% of GDP growth in 

advanced economies and facilitates $8 trillion each year in e-commerce; McKinsey estimates 

that digital flows now have a larger impact on GDP growth than goods trade_;; Importantly, 

McKinsey also reports that 75% of the impact of the Internet is being realized by traditional 
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industry. Thus, the use of the Internet to facilitate commerce is not just an Internet industry 

trend, but is actually a phenomenon that is affecting every segment of the U.S. economy. The 

U.S. International Trade Commission report on digital trade found that that digital trade 

boosted gross domestic product by 3.4 to 4.8%, through enhanced productivity and reduced 

international trade costs, and the effect on total employment ranged from no change to an 

increase of 2.4 million full-time equivalents_;;; 

There are about 3.5 billion Internet users globally_;v The United States has less than 300 million 

Internet users. So over 90% of the addressable market for U.S. businesses leveraging the 

Internet is in other countries. Moreover, digital trade is a growth market for U.S. businesses. 

Cross border business-to-consumer e-commerce is expected to be a $424 billion market by 

2021.v A report from Progressive Economy finds that low-value or "micro" U.S. exports 

increased by 103% between 2005 and 2010, more than twice the increase for all exports; these 

low-value shipments often tend to bee-commerce shipments.v; In U.S. export markets like 

Spain, Mexico, and Japan research firm lpsos estimated that cross border online consumer 

spending will experience nearly 30% year-over-year growth in 2016.v;; 

Ill. Small Business Digital Trade 

Pay Pal is proud to sit at the center of the digital trade revolution. It is a revolution that has 

profound impacts on the concept of trade as we know it. Traditionally, international trade was 

solely the domain of the largest businesses who could take on the capital costs, establish the 
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regional contacts, and comply with the regulatory requirements associated with international 

trade. A small business can now use the Internet in combination with a host of online service 

providers to engage in trade at a geographic scale similar to large businesses. This 

democratization of trade has tremendously positive development, inclusion, and growth 

implications. 

Insights from our data at Pay Pal demonstrate the tremendous impact that digital technology is 

having on U.S. small businesses. Over 65% of U.S.-based PayPal top merchants engage in digital 

trade. Compare this with numbers from the U.S. Commerce Department, which finds that less 

than one percent of America's companies export. When we surveyed 170 U.S. small and 

medium sized businesses that have an online presence we found that those businesses that 

engage in cross border trade report double the sales revenue of those businesses who only sell 

domestically. One in three businesses who reported that they currently only sell domestically 

intend to start selling cross-border in the next year.,;;; 

To contextualize these statistics it is useful to examine the following case studies of U.S. small 

businesses engaged in digital trade: 

Stan Carson from Wenatchee, Washington spent much of his career as an engineer in 

the US Coast Guard, but in 1994 he started a brick-and-mortar sporting goods store. 

Stan began his online business in 1997 and it has grown consistently since then. Stan 

has seen the benefits of digital trade as he now employs 28 individuals. "Selling 
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internationally provides us with the ability to better source our products and broadens 

our market share," he said. 

Jamie Wankum from South Sioux City, Nebraska managed international sales for 

Gateway Computers for 15 years before starting his online business focused on 

recertified electronic products. Jamie now employs 10 people and exports his products 

through his website brownbox.com as well as a number of online marketplaces. 

IV. Barriers to Digital Trade 

The opportunity described above is tempered by the barriers that limit the benefits of digital 

trade. Small businesses in particular face a host of barriers to engaging in digital trade. In our 

survey of U.S. small businesses we learned that shipping, regulatory compliance, and 

customs/duties were the top three barriers to cross border commerce. Furthermore, 

consumers expect that a business of any size will provide a seamless cross border online 

commerce experience with language translation, mobile optimization, free shipping, and a safe, 

easy, way to pay for their products and services. These are all major challenges for any 

business, but present particular challenges for smaller businesses engaging in digital trade. 

Trade scholars claim that one of the "new issues" raised by digital trade is data localization, but 

this issue is merely a modern manifestation of a classic trade barrier known as a localization 

requirement. Pay Pal believes it is especially important that new international trade 

agreements prohibit localization requirements that impact the digital ecosystem. For example, 
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Pay Pal was recently forced to withdraw its services to Turkish users- both merchants and 

consumers- because Turkish rules governing a local payments license insist that payments 

systems be fully localized in the country. We are concerned with other countries developing 

similar requirements on foreign companies seeking to provide services globally. 

V. The U.S. Government and Digital Trade 

The legislative and executive branches of government have recognized the importance of digital 

trade and have taken several actions in the last few years to support it. In Congress, the 

passage of the Customs Reauthorization Bill importantly raises the de minimis, the level below 

which imports are exempted from duty and paperwork. This is not just an import issue that 

enables business and consumers to more easily procure foreign merchandise; it is also an 

export issue because U.S. small businesses that export online have faced tremendous issues 

accepting returns one-commerce shipments from international customers. The Customs 

Reauthorization Bill facilitates the return of these low value shipments because it eliminates the 

need for these goods to be subject to duties and paperwork upon re-entry to the United States. 

The Department of Commerce has also effectively promoted digital trade with the appointment 

of its first Director of Digital Economy, the build out of export.gov (a one-stop shop for 

information and portal to access the Department's export assistance centers), the creation of 

the Digital Attache pilot program, and Secretary Pritzker's Startup Global initiative to emphasize 

the digital and offline resources available to startups and small businesses interested in 

accessing the global marketplace. The Office of the United States Trade Representative has 

also been working diligently to harmonize digital trade standards around the world. The Trans-
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Pacific Partnership (TPP) contains important language on national treatment for cross border 

financial services, a bar on customs duties on digital products, regulatory transparency and 

coherence, as well as small business trade facilitation. 

There is even more that the U.S. government can do. By improving customs and duties 

systems, consistently educating businesses on updated best practices, and promoting safe and 

secure services, governments can help to combat some of the major barriers reported by small 

businesses. The U.S. government can also encourage the use of technical solutions that are 

being created to resolve some of these barriers. Trade agreements could go further in 

prohibiting localization requirements affecting cross border financial services companies. 

Ambassador Michael Froman has stated publicly that the United States Trade Representative is 

looking to address this issue in the context of the Trade in Services Agreement (TISA), which 

would be a welcome addition and one that we would also like to see included in the 

Transatlantic Trade and Investment Partnership (TTIP). All of these efforts will no doubt help to 

improve the environment for digital trade. 

The Unites States is in a competition to get global policy on digital trade right. The European 

Union has its Digital Single Market Initiative. The Regional Comprehensive Economic 

Partnership- an agreement between China, India, and several other nations in the East Pacific 

-is looking into e-commerce and digital trade. The United States must continue to look for 

opportunities to open up the market for digital trade and create rules that provide certainty for 

businesses and consumers engaged in the cross border digital marketplace. 
71 

f 

Chairman REICHERT. Thank you, all of you, for your testimony. 

Thank you for being here today. And we will have some questions 

for you, and I appreciate you staying for the questions. Like you 

were going to get up and leave anyway. Right? 

Ms. Shukla, your testimony is inspiring in this Committee and 

others. You know that, on the Ways and Means Committee, we 

have heard some pretty inspiring stories as we sit here and listen 

to the testimony of Americans who have realized the American 

dream, and still have dreams and hopes ahead. So congratulations 

on your success. 

And thank you to all of you for your testimony again today. 

You mentioned that selling on Amazon’s global platform helped 

you make sales in export markets. Can you explain a bit more how 

Amazon has helped you make the most of your export opportunities? 

Ms. SHUKLA. Sure. You know, when I first began, I really just 

was able to click a button and make my product available on a lot 

of international markets. But one of the most difficult things I realized was actually getting the product to the end customer. And 

there have been so many incredible digital tools that have helped 

us. But the time was still actually very, very long. It would sometimes take somebody in Switzerland 6 to 8 weeks to get our product. And that is obviously a very long time. And there were significant regulations that we had to work out. 

So one of the amazing things about Amazon Launchpad—and we 

are still in the very early stages. So we are just starting to see all 

of the traction that is coming out of that. But one of the amazing 


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things is that they helped us go through the compliance for all of 

the markets that we are selling in. So it was made available in all 

of Amazon’s countries that they sell to, which is over 180 countries, 

I believe. But it also made the time that it takes for the customer 

to receive it much more efficient. And for a small business like 

ours, that is incredible. We can’t possibly have that kind of speed 

or that efficiency in getting the product to customers. And that, I 

think, really will unleash a whole new set of opportunities for us, 

because there are so many more people we can reach. As they get 

it more quickly there is a lot of other opportunities that come out 

of that, including repeat purchases, the ability to work with larger 

customers, and farmers as well. 

Chairman REICHERT. Are there any other digital platforms 

that you have used? 

Ms. SHUKLA. So we have used Shopify and BigCommerce. We 

have used PayPal, of course, to help us do our payments. Every 

credit card company has been helpful in figuring out, from AmEx 

to Visa and MasterCard, they have all been very helpful in figuring 

out how to accept foreign payments. Because that was a challenge 

I certainly didn’t foresee. Of course, it was easy to get an order, but 

then customers wanted to pay in different ways. We had to make 

sure if we needed to process a refund, there was as way to do that, 

if the product didn’t show up or got caught in customs. 

But I think the opportunity right now with Amazon simplifies 

kind of all of that because all we do now is ship it to one of their 

warehouses abroad or even domestically, and they will take it 

abroad. So I think we are excited to see what happens as we 

launch on Launchpad, because I think it will be a very different 

way of doing business for us. A lot less hassle, a lot more efficiency. 

Chairman REICHERT. Thank you. 

Mr. Ahmed, in your testimony, you shared a great example of a 

small business from my district that benefited from selling its good 

internationally, businesses like Performance Equipment in 

Wenatchee, Washington. It is in the central part of the State. Kind 

of in a rural area of the State. They need a convenient, secure payment system in order to export. And this is true for businesses of 

all sizes, obviously. 

Restrictions on cross-border data flows clearly would make it difficult to maintain an efficient payment network that is global in 

scope. Can you identify any other barriers that make it difficult or 

impossible for PayPal to operate in a certain market? 

Mr. AHMED. Cross-border data flows are certainly a central 

piece of the underlying certainty that businesses like ours need 

when approaching other markets. Other issues that are actually 

addressed in the Trans-Pacific Partnership that are quite important include the bar on duties for digital goods. It is an important 

provision, as you want digital goods to flow freely across borders 

and not be stopped at a border to collect duties. So that particular 

provision would be quite impactful and quite important. 

Chairman REICHERT. Has the United States had success in 

TPP or other negotiations in addressing such barriers? 

Mr. AHMED. Yes. Thank you, Chairman. The digital goods issue 

has been in previous free trade agreements, including the Korea 

73 

Free Trade Agreement, and is now a part of the Trans-Pacific Partnership as well. And so that is an important protection. 

Chairman REICHERT. Could you describe how important it is to 

ensure that these commitments are enforced? 

Mr. AHMED. Certainly. The certainty comes from the enforceability of the agreement. There are many diplomatic negotiations 

that may occur. But the benefit of a trade agreement is that it is 

enforceable and that countries that feel that the agreement has 

been violated can bring a dispute and get that dispute resolved in 

a binding form. 

Chairman REICHERT. All right. Thank you. 

Mr. Rangel, you are recognized. 

Mr. RANGEL. Thank you, Mr. Chairman. And again, I thank 

you for bringing this exciting panel to us to hear their testimony. 

I wish I could staple them to every town hall meeting that I attended just so that you can shatter the fear and the ignorance of 

people not having the slightest idea as to where our country is 

going with trade, what are you up to when you talk about putting—I remember when I came to Congress, I pulled up a friend 

of mine’s name in the computer. He said, how could you possibly 

have my background in a computer? And you go to a foreign country people, don’t want you to take their picture. 

And quite frankly, there is a fear of what you don’t know. And 

there is a feeling that you don’t want people to know what you 

don’t know. And privacy is a good thing. That is yours. And I just 

hope that there is some way for our country to take advantage of 

this competitive edge that we have, because to me, we are talking 

a new language. 

We have been fortunate that the international community has 

adopted English in trade agreements. But it seems to me that technology is the new international language. And I would think that 

there are at least 100 Congressional districts that if you talked 

about science, technology, and trade, the first thing Americans say: 

What is in it for me? And if you are 60 years old, it is hard for 

us to have an imagination as to what could possibly be in it for 

them. Technology has just passed them by. 

But, boy, if we knew that our kids and our grandkids would 

learn this new language, to see how easy it is for them to manipulate games and gadgets and how their minds are receptive, and to 

see how grandparents can learn so much from the younger people, 

if only we had an educational system that would allow everyone to 

see what trade with the European Union, what trade in the Pacific 

could mean to them. 

Mr. Padilla, you talk about technology and your outfit like all 

America knows what is going on. But in our school system, they 

haven’t the slightest idea as to the opportunities they have. It 

breaks racial barriers. It breaks cultural barriers. It makes you a 

potential successful citizen of the world. And yet when we talk 

about trade, people say: How many jobs are we going to lose this 

time? 

So I don’t know what question to ask you, except I wish that 

your testimony could be the preamble to TPP. I wish people could 

see the opportunities to TPP. 

74 

And the other bookend should be infrastructure. Because without 

communication, without transportation, I don’t care what is in 

TPP, it just won’t work. 

And your message, especially you, Ms. Shukla, in breaking down 

the new world of technology to your grandmother and to your 

mother with things that everyone understands, and all of you have 

done a remarkable job there, leads me to believe that we in the 

Congress have to have a better way of interpreting what world 

trade and technology means for the future of our great Nation. 

So, Mr. Chairman, I thank you for this illuminating panel, and 

yield back the balance of my time. 

Chairman REICHERT. Thank you. 

Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. Thank you to our panel. 

Some inspiring stories obviously, Ms. Shukla. I am glad that your 

grandmother shared her intellectual property with you and that 

you have taken that globally. I am trying to think back if I could 

take any of my grandparents’ intellectual property and pursue 

some economic opportunity. 

But this is such an important topic. And what I like about technology, digital technology, is the opportunity it presents consumers 

through utilizing so much of the technological infrastructure that 

is out there, and market opportunities, but also an entry into the 

marketplace for the little guy. And it’s just—I mean, the stories are 

many. And I don’t want to take up my time describing all of those, 

but it is just truly amazing what we can do, what the little guy can 

do, to access the world, as Ms. Shukla has certainly spoken very 

well about. 

The empowerment of producers—and when I say ‘‘producers,’’ I 

happen to mean agriculture producers, as a representative of the 

largest agriculture district in America where producers themselves 

have been able to be more efficient for the world marketplace. And 

I think there are great examples of how utilizing resources more 

efficiently, whether it is water, land, or even chemicals, that there 

is economic opportunity associated with that as well. 

Mr. Atkinson, could you discuss why digital trade is important 

to industries, such as agriculture, and maybe reflect a little bit on 

those uses? 

Mr. ATKINSON. I am sorry. Was the question about agriculture? 

Mr. SMITH. Agriculture, right. 

Mr. ATKINSON. So one of the things—dynamics that is happening in agriculture is we are moving to smart agriculture, precision agriculture, both on sort of the biological side, but also on the 

IT side where farmers now are planting crops and the ability to 

know down to actually the square meter each part of land, does it 

need a little more water, a little less. And this notion of precision 

agriculture is critical. But to really maximize that benefit you have 

to have large data sets. 

And one of the things that is going to happen with agriculture 

and many other industries is what is called machine learning or 

cognitive computing or artificial intelligence, where we not just 

learn from one farmer, but the ability to have a lot of farmers together. And again, the data would be anonymized, so there would 

be no risk to an individual farmer. But if we could know how, in 

75 

general, all cotton farmers or all wheat farmers around the world, 

how this is working, that would really, really provide a lot of innovation and improvement. But again, if you have this requirement 

that the data can only be in one small place, you are giving up this 

big opportunity for machine learning and artificial intelligence to 

really advance the field. 

Mr. SMITH. Right. Very well. Thank you. 

Mr. Beckerman, how do your companies help ag producers navigate the barriers and challenges of international trade? 

Mr. BECKERMAN. Thank you for the question, Congressman. 

The Internet is all about reducing friction and connecting people 

around the world and connecting supply and demand in a seamless 

instantaneous way. And that happens in every single industry, including agriculture. Everything you see, what happens on the payment side from companies like PayPal and others. There are technology Internet companies like AgLocal that provide almost like an 

eBay for agriculture. 

And what you see in every single industry, including agriculture, 

is our companies in the industry and digital trade, it is just making 

it easy cutting out the middleman and making—you know, you can 

focus on farming and reach customers around the world. 

Mr. SMITH. All right. Very good. Thank you. 

And again, I want to add emphasis to the fact that while Uber 

and Lyft might make our lives easier, what I find even more inspiring is that someone can pursue opportunity on the other end of 

that by being a driver or providing various services in the shared 

economy. It is certainly the way of the future, and I find it exciting 

and inspiring. And I am glad you are here today. 

I yield back. 

Chairman REICHERT. Mr. Doggett. 

Mr. DOGGETT. I am fortunate to represent Rackspace, which I 

believe, Mr. Beckerman, is one of the members of your association. 

And I would ask you, for them and for other members of your association, to just comment a little more about the importance of getting an agreement that can be fully implemented with Europeans 

on privacy. 

Mr. BECKERMAN. Thank you. Rackspace is a terrific company. 

Europe is obviously a huge market and an incredibly important 

one. And we applauded the Privacy Shield Agreement that was just 

inked this week because it does help data flows across the Atlantic 

between Europe and the United States. And that is key for all of 

our companies, large and small, to be able to have customers in 

Europe. And our companies obviously take privacy and security of 

all the users very seriously. And this agreement and being able to 

do business in Europe is critical for companies like Rackspace and 

others. 

Mr. DOGGETT. If that agreement is fully implemented, you have 

referenced the TPP, of which there are some good provisions and 

some very troubling provisions, but what is to be gained in other 

parts of the world by having similar agreements to that that we 

have entered with the European Union? 

Mr. BECKERMAN. Well, there are 3 billion Internet users 

around the world. And for most of our member companies, they 

have more users now and more people using the services abroad 

76 

than they are in the United States. And so the more that we can 

have trade agreements globally around the world that take into account some of the policies I talked about on intellectual property, 

copyright, on intermediary liability, and generally having data be 

able to flow seamlessly across borders and not having forced localization of servers throughout the world, those provisions are going 

to be key in other markets too. 

Mr. DOGGETT. Would you envision, and I think Mr. Ahmed may 

have referenced this as well, that we do this through the World 

Trade Organization to deal with these issues in one agreement for 

the entire world? 

Mr. BECKERMAN. Well, there are certainly updates that will 

need to be made. The last time, I think, they did a WTO negotiation was back in the 1990s, and most of our member companies 

didn’t exist. 

Mr. DOGGETT. Right. 

Mr. BECKERMAN. And we certainly wouldn’t have a hearing 

like we are today and stories like we are hearing today back in the 

1990s. And so we definitely need updates and improvements. 

Mr. DOGGETT. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman REICHERT. Ms. Jenkins. 

Ms. JENKINS. Thank you, Mr. Chairman, for holding this hearing. And we thank our experts for their testimony today. It has 

been very informative. 

Last year, I had an opportunity to visit a small engine parts supplier in Basehor, Kansas, called R&S Equipment. They ship parts 

all over the U.S. and also sell parts globally. They shared with me 

that day some of the challenges with their products clearing customs shipment tracking when they sell internationally. But even 

with their challenges, they want to continue to grow their international customer base. So this testimony this morning has been 

very helpful to me. 

My question maybe first is for Mr. Beckerman, kind of as a followup to Mr. Smith who has a district very similar to mine, a very 

rural district. Can you just tell us how your member companies enable small businesses located in rural districts like mine to get online and begin exporting? And then what are the most significant 

barriers for these small businesses from our trading partner nations when they make their first sale overseas? 

Mr. BECKERMAN. Thank you for the question. You know, I 

think stories like we heard about FreshPaper and others exist in 

every single one of your congressional districts in industries where 

you might not expect. And again, our companies are platforms that 

are helping to connect people around the world. And it is everything from on the payment side with what we are hearing from 

PayPal and Amazon. Amazon just had their Prime Day yesterday. 

And my guess is there are probably sellers and small businesses 

in every single State that were able to benefit from that and sell 

around the world. 

The problem is it’s—typically, it has been very complicated with 

customs and duties and what you owe and currency and things like 

that, and Internet companies are just about reducing the friction, 

getting rid of the middleman, and making it easy for a constituent, 

77 

with a click or a swipe, being able to sell around the world. And 

I think, you know, if we had this hearing back in the 1990s, you 

wouldn’t have had small businesses talking about how easy it is to 

be a global seller or accessing a global market. And it is easy if you 

are a two-person business, you are able to access the Internet and 

be able to reach customers in any country almost. 

Ms. JENKINS. Okay. Thank you. 

Since I still have time, Mr. Ahmed, can you elaborate on what 

PayPal can do to help small exporters in rural areas like mine and 

some of the challenges facing your company? 

Mr. AHMED. Certainly. So to the example you just raised of the 

auto parts company, one of the solutions that we have is a product 

called PayPal PassPort, which addresses the issue of seasonality. 

So different product lines have different seasons in different countries where they are going to be purchased more likely. And so we 

provide that business with intelligence on where those products are 

going to be most likely to sell around the year so that they can 

have a steady income from global customers. 

And then on the policy side, the issue that might most address 

the concern of R&S Equipment would be raising the de minimis 

level, and that is the level below which imports are not subject to 

duty. So I would imagine many of these auto parts are below $800, 

for example. And that is the duty level that the Customs Reauthorization Act has raised the U.S. de minimis level to. And so the Customs Reauthorization Act encourages the United States Trade Representative to get other countries to raise their level as well. And 

if we can do that, that would probably really benefit a company 

like R&S Equipment accessing global markets. 

Ms. JENKINS. Thank you. 

I yield back, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. Thanks for holding this 

hearing. 

And I want to thank the witnesses for your testimony here today 

on such a crucial topic, as far as trying to break down or eliminating the barriers to digital trade. 

We have an important trade agreement pending before Congress 

right now, Trans-Pacific Partnership. And sometimes, with all due 

respect to Mr. Padilla here and your testimony, sometimes these 

trade agreements are perceived as being done in the interest of the 

multinational, the Fortune 500 companies, but as we heard from 

you today, Ms. Shukla, the tremendous impact it has on new 

startups and small businesses. 

And, Mr. Atkinson, I was struck by your testimony where you 

wrote that, if I got this right, 82 percent of the top grossing apps 

in the United States industry are created by small companies and 

startups. That is tremendous. So could you just take a minute and 

kind of explain the significance of making sure that we get crossborder data rules done right and the impact it can have on the 

startup community and small businesses throughout our country? 

Mr. ATKINSON. Yes. First of all, I would just have to reiterate 

the point, I do think sometimes we forget that large business still 

employs the majority of Americans. And they pay certainly a sigVerDate Sep 11 2014 23:38 Mar 02, 2017 Jkt 022164 PO 00000 Frm 00081 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22164.XXX 22164
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nificantly higher average wage, they are more likely to provide benefits, they are more likely to be unionized, they are more likely to 

provide health care. 

Mr. KIND. Right. 

Mr. ATKINSON. So I don’t think we can—I don’t think we 

should dismiss the fact that if trade agreements help large companies, that is also helping American workers. 

But clearly, one of the advantages of cross-border data flows and 

all of these Internet tools we have been hearing about is they give 

small companies tools that they couldn’t otherwise have. IBM 

doesn’t need any of these tools. They have got experts all around 

the world. They know how to do this. But for a small company it 

is quite difficult. And one of the challenges is that as more and 

more of the global economy becomes traded, in other words the 

ability to have competition for all of this, if we are not having the 

ability to get in those markets, it is going to come back. And it is 

not just that our small companies won’t have the business, it will 

be that their small companies will have the business and it will be 

some FreshPaper from some other country that we are buying from 

rather than selling our FreshPaper. So that is why it is critical. 

I think we have real advantages, being arguably the most entrepreneurial nation on the planet. This is really important for us for 

our small business community going forward. 

Mr. KIND. In fact, the Trans-Pacific Partnership is something 

that hopefully we will have a chance to consider and vote on later 

this year. But, you know, we took a very serious run when it comes 

to cross-border data rules, the localization issue. I think we are 

going to have an announcement shortly on the landing zone as far 

as the financial services and the localization issues that many of 

us have been working on. So I think it is a significant step in the 

right direction where we need to go with global digital trade. It literally is the lifeblood right now of the global economy. 

Could you, Mr. Atkinson, speak to the consequences if somehow 

this Congress can’t figure out a way to get TPP done and the agreement falters and falls apart? 

Mr. ATKINSON. Well, I think we are at a critical inflection 

point, at least with digital trade in the world, because at one level 

we are poised on a knife edge. We can go one of two ways. We can 

go the way of openness and globalization, and that inherently will 

advantage the U.S. because that is our core strength right now 

compared to other countries in the world. If we don’t pass the TPP, 

with these very strong provisions to have digital openness and digital trade, I would predict that what we are going to see is the tipping point just going the other way to essentially a regime of digital nationalism, sort of a pre-World War II Balkanized digital 

economies. And that, first of all, that is going to be bad for the 

global economy, but in particular it is going to be bad for us. So 

TPP to me is a very important signal to get this right. 

Mr. KIND. I think the other thing to consider here is TPP, in reality, is not going to just be limited to the 12 nations that are at 

the table negotiating, there are many others that are expressing interest in joining, including possibly at some time in the future, 

China. And if we can get the rules done right now embodied in this 

agreement, then that is something that China will have to adopt. 

79 

And I commend the administration’s announcement today. They 

are taking another aggressive WTO action against China for illegal 

export subsidies on nine raw materials that are holding domestic 

manufacturers back in this country. That is 13 cases they have 

taken against China. We have won every single one of them. Twenty-two total through the WTO. We have won every single one of 

them. So it is not just important to get the rules done right in the 

agreement, it is the followup. 

Mr. Ahmed, as you said, the enforceability of this is going to be 

very important as we move forward. Again, we thank you for your 

testimony today. 

I yield back, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Dr. Boustany. 

Mr. BOUSTANY. Thank you, Mr. Chairman, for holding the 

hearing, and I want to thank all of you. This is a really important 

hearing. 

And to Mr. Kind, I really appreciate your line of inquiry and the 

concerns you raised, because I fully agree with you here. 

I have been struck by how getting digital trade and the rules of 

the road correctly crafted is so important because digital trade is 

the grand enabler for small businesses to really participate fully in 

a global economy, which plays to our strength in this country. And 

I was made aware of this report by Sandvine estimating that legitimate audiovisual and music services account for 70 percent, 70 percent of Internet bandwidth during peak hours. And the U.S. Chamber’s Global IP Center looked into this connection between strong 

protection for copyright and the digital economy, and not surprisingly found a number of important correlations. 

Economies with stronger copyright protection have greater access 

to digital technologies and creative content than economies with 

less favorable IP environments. Pretty intuitive. And also they 

have seen more than double the amount of online creativity than 

that of economies with weaker copyright environments. 

So with regard to this, I mean, clearly copyright protections are 

vital as we go forward. And I just invite some commentary with regard to that. 

Mr. Atkinson, if you want to—— 

Mr. ATKINSON. Yeah. Well, thank you for that question. It is 

important to get the balance right. I think the U.S. has gotten the 

balance right with the Digital Millennium Copyright Act and Section 230, and at the same time strong protection for copyright. We 

have done our own studies, for example, correlating strong copyright protection with strong innovation, as well as strong content 

production. And they are strongly correlated, as you rightly note. 

So I would agree with Mr. Beckerman that trade agreements 

should include some kind of provisions like Section 230 for intermediate liability protection. But also for safe harbor kind of on both 

sides, safe harbor and liability protection for if you are hosting content inadvertently from someone else. But at the same time, safe 

harbor if you take it down because you think it is infringing, you 

shouldn’t have risk on that if you are doing it in good faith. 

But I would caution the Committee on one regard, and that is 

with regard to exporting fair use. Fair use is a really very specific 

80 

term that is in U.S. jurisprudence around a number of cases that 

have evolved over the years. And the fair use provision evolves over 

time. 

One of the challenges is really that one person’s fair use is another person’s piracy. And what we see in the countries, particularly in the TPP, very troubling rates of piracy. For example, software piracy rates in the U.S. are at 19 percent, but in Malaysia 

are 55 percent, Mexico 57, Chile 61, Vietnam 81. And so I would 

worry that if we just put fair use into that agreement or other 

agreements, that we are giving consensually these countries a get 

out of jail free card that they can justify already rampant levels of 

piracy just by, you know, saying, well, this is fair use, which it 

clearly isn’t. 

Mr. BOUSTANY. Right. And I understand the Second Circuit 

has described fair use as one of the most troublesome concepts in 

copyright law. And it seems innocuous, two words, but hundreds 

and hundreds of cases, some 1,100 pages to explain what this 

means. So you are saying it is not advisable to use this concept 

going forward in—— 

Mr. ATKINSON. Yeah, I wouldn’t use this concept. It is really 

unique to the U.S. system. And other countries don’t have the same 

kind of legal system that we have. I think it is important to recognize that USTR included provisions around exceptions and limitations in the TPP. This has been from what is called the Berne Convention over the years. And we can work to strengthen those. But 

I think sort of exporting fair use per se would be ill-advised. 

Mr. BOUSTANY. I appreciate that. And with regard to the Privacy Shield agreement that was just negotiated and completed, I 

would be certainly interested in understanding, as I look at this 

more closely, is this really state of the art? Is this what we need? 

Are there things missing that we need to consider as we continue 

to look at this very rapidly evolving field? If there is any commentary now, I would appreciate it. 

Mr. BECKERMAN. I think the privacy shield is incredibly important, particularly for companies that are small or mid-size companies that want to be able to have data flows across the border 

to Europe. And we are happy it got done. And I think that was 

something that was probably in the way for getting other trade 

deals done. 

And if I may, I would like to comment a second on the copyright 

conversation. Our members are on the front lines every day fighting piracy and copyright violations around the world. And what we 

have sought for in this trade agreement and in others is to have 

the same balanced copyright policy that we have here in the United 

States, with fair use exceptions limitations. That is the U.S. balance that I think works very, very well here for creators. We think 

that should be part of trade deals around the world, and we think 

it is an important component that needs to be included. 

Mr. BOUSTANY. Thank you. 

Mr. PADILLA. Mr. Boustany, if I could add on privacy shield, it 

is vitally important to every company engaged in transatlantic 

commerce, not just small- and medium-sized companies. But in 

fact, any business that moves data across the Atlantic can benefit 

from privacy shield. The administration has done a very good job 

81 

in negotiating a successor to the Safe Harbor agreement that was 

in place for 15 years. This agreement is likely to be challenged in 

European courts again in the near future. And this issue won’t go 

away. And it underscores why it is so important for us to move 

ahead with digital trade provisions in the TTIP negotiations with 

the European Union. We have to lock these things in, otherwise 

there will be uncertainty about whether or not commerce across the 

Atlantic, the single biggest trade relationship we have, can continue. 

Mr. BOUSTANY. Thank you. I yield back. 

Chairman REICHERT. Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman, also for holding the 

hearing. And this has been great testimony and very helpful. And 

it was mentioned earlier about TPP now prohibiting the localization measures for data in all sectors except for financial services, 

of course, and government procurement, allowing those specific exceptions to achieve legitimate public policy objectives. But, you 

know, I guess I am pleased that most of those localization measures would be prohibited under TPP. But I hope that clear and enforceable commitments are also made in that financial services sector, as was mentioned. 

I am really encouraged that the administration and USTR have 

been moving forward with that fix addressing those deficiencies in 

TPP. But I think a lot of us, and myself in particular, are very interested in knowing and learning more to ensure that the proposed 

fix, that has been talked about, is actually going to be enforceable, 

that it is going to be operational in all 11 TPP countries because 

you have got four countries that are obviously not in the TiSA fix 

potentially that have to be addressed. And so we are going to be 

looking for that. 

But we were just talking about the Atlantic and Europe, and so 

I just want to shift and ask a question here, because I do understand that progress has been made on digital, you know, digital 

issues. It has been a little slower in the TTIP discussions in general so far. And we have got to see really solid commitments there, 

if it is going to get, you know, my support, I think the support of 

others as those TTIP negotiations move forward. So here is the 

question. Can you just describe maybe what are some of the barriers right now that U.S. digital exporters face unique to the EU? 

Expand a little bit what our conversation was just going, but what 

are some of the unique barriers that we have right now as you look 

at trade with the European Union? 

Mr. PADILLA. I could give a real-time example, Congressman, 

actually just from yesterday. The biggest thing that we are seeing 

in Europe is demands to store data within the European Union. 

And as Rob mentioned, there is this view within Europe, particularly in the last few years that somehow if the data remains within 

Europe, that it is going to be more secure. That is just not true. 

The geographic location of the data doesn’t really make a difference 

with regard to what privacy or security laws apply. 

But IBM makes a software product that we sell to a Belgian 

bank. It is a cyber security product so that when people do their 

online banking, they are more secure. That data that in order to 

update malware and virus threats, we call on databases in the 

82 

United States and in Israel. And just yesterday, we met with the 

Belgian data protection authority that said we don’t want you to 

do that. We don’t want you to get the updates on the malware from 

Israel because we don’t trust Israeli surveillance laws. We don’t 

trust American surveillance laws either, for that matter. And this 

is an increasing trend. You know, this doesn’t just happen in 

China. This is an example from Belgium. And I would imagine that 

many companies are probably experiencing similar things. 

Mr. PAULSEN. Anyone else have any feedback in that area 

that—is there any other progress being made? 

Mr. BECKERMAN. I mean, I would agree with that. I think 

when you look at what forced localization is, it is nothing more 

than protectionism, really. And it hurts trade and investment. And 

the way the Internet works is the free flow of information across 

borders and not requiring companies to build data centers. And 

that is a perfect example of yours, and so that needs to be fixed. 

Mr. ATKINSON. So Mr. Padilla brought up the point of Israel. 

I just can’t resist pointing out, I think it is ironic that the Europeans have gone after us with regard to safe harbor inadequacy. 

At the same time, they don’t trust Israel, and yet Israel still has 

a safe harbor with Europe and has agreed to cut us off. So the 

Israelis cut us off. There are no cross-border data flows between 

Israel and the U.S. now under the new Israeli rule because they 

wanted to gain the favor of the Europeans, even though the Europeans don’t trust the Israelis. 

So if the Europeans want to be consistent about this, they 

shouldn’t just be talking about us, they should be talking about all 

the other countries that they have agreements with and whether 

their security systems are adequate. And they have not done that. 

So from the outside it appears that the Europeans are singling out 

the U.S. perhaps for reasons because we are the dominant IT player in the world. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

Chairman REICHERT. Thank you. 

Mr. Pascrell. 

Mr. PASCRELL. Thank you, Mr. Chairman. And we certainly— 

you have certainly selected a great panel, without exception. 

Mr. Atkinson, the administration just didn’t wake—I can’t picture this—just didn’t wake up one morning and say and come to 

the conclusion that within financial data or digital trade that we 

are going to protect financial communication. I mean, you were 

very specific about this. And I want you to tell me, as I ask many 

panelists on many different issues, what is the administration’s position or why did they come to that position, do you think? And 

what specifically do you object to? 

Mr. ATKINSON. So I think the administration came to that position for several different reasons. One is, I don’t think they had 

fully enough understanding of how digital trade—trade in data 

work and the security systems involved. So I think there was that 

problem. The other more legitimate issue was that they were concerned about what is called resolution. If there is a U.S. bank and 

there is a problem with it and they have to resolve it and the data 

is perhaps in another country and the other country says, you can’t 

83 

have that data for some reason. That is a legitimate concern that 

financial regulators would have. 

But the answer to that legitimate concern is to not prohibit 

Citibank or some other bank from storing data in Canada or some 

other country, it is to make sure that every country in the TPP 

agrees that when there is a resolution issue, that they will not 

block that data flow. 

Mr. PASCRELL. And how would that be resolved? How would 

that be—what oversight could we have on that? We have a difficult, difficult time in carrying out what we place in these trade 

deals, regardless of what the product is, and bringing justice to 

bear. Why would this be any different? In fact, wouldn’t it be more 

difficult to oversee those kinds of things, financial data? 

Mr. ATKINSON. Well, first of all, there are already some other— 

and I apologize, we wrote a report on this and I didn’t write the 

report, but there are other provisions in there that as well that 

would help them. And we already have a global financial system 

where we rely on other countries to do certain things. And we don’t 

say that all finance has to be national. So I see this as relatively 

similar to many other financial issues. 

Mr. PASCRELL. You do? 

Mr. ATKINSON. Pardon me? 

Mr. PASCRELL. You do see the similarity. You say that this 

should be handled like everything else. 

Mr. ATKINSON. Well, my point was we do have an internationalization of the finance system, that Treasury and other regulators 

allow certain things to be international. That is because we have 

trust and we have global agreements. And I don’t see that as any 

different. I just also see this as a relatively modest, low risk problem that if it were to occur—and by the way, I would say, by the 

way, the fact that USTR is proposing a fix suggests that USTR at 

least has come to the realization that cross-border data flows here 

are viable. 

Mr. PASCRELL. From the latest numbers that we have, the size 

of this digital growth in cross-border data has been relatively—was 

45 times what it was in 2005. I mean, that is a huge number. We 

trade in goods. That has been relatively flat. This technological 

trade has been a boon to tech companies, no question about it. 

Many small- and medium-sized businesses that have been able to 

expand their market overseas in an unprecedented way. We know 

that the U.S. is by far the global leader in digital trade. Our companies lead the world in creating digital products and providing 

data storage. We are talking about $400 billion in services that we 

have exported. Fascinating number. 

So as this technology continues to innovate and become more and 

more integrated into our daily lives, the average American, which 

is very frequently forgotten in every trade deal, we want to make 

sure our trade agreements continue this expansion in a way that 

provides access and maintains security, privacy, and jobs by the 

way. 

So I want to ask you this question as a followup. We have strong 

innovation protections built into U.S. laws, but we know that more 

U.S. companies now have a majority of users and consumers overseas. What do you think we can do through the TPP implementaVerDate Sep 11 2014 23:38 Mar 02, 2017 Jkt 022164 PO 00000 Frm 00087 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22164.XXX 22164
84 

tion to advance gold standard U.S. laws about copyright and about 

digital trade? 

Can we get an answer on this, Mr. Chair? It will only take a 

few—— 

Chairman REICHERT. If you could—we are already over time— 

if you could make your answer quick, please. 

Mr. PASCRELL. Thank you. 

Chairman REICHERT. Who are you asking? 

Mr. PASCRELL. Mr. Atkinson. 

Mr. ATKINSON. Well, I think the TPP agreement has struck a 

good balance with regard to the need for openness, the need for 

intermediaries to have some liability protection, and the need to 

protect copyright. I do think, though, that one of the challenges, 

and when we look at the global economy, is there are many, many 

countries who are copyright scofflaws and who are just engaged in 

systemic stealing. And as a big producer of IP in content as the 

U.S. is, that directly hurts U.S. jobs. 

Mr. PASCRELL. Thank you very much. 

Thank you, Mr. Chairman. 

Chairman REICHERT. You are welcome. 

Mr. Kelly. 

Mr. KELLY. Thank you, Mr. Chairman. I thank the panel for 

being here. 

Ms. Shukla, I got to tell you, your story is one of those stories 

that people look at and say, you know what, this is an incredible 

thing that you have been able to do. And the fact that you were 

able to do it, I think, gives great encouragement to everybody. 

Listen, last month I had an opportunity to go to a Transatlantic 

Legislators’ Dialogue meeting at The Hague with Representatives 

Diaz-Balart and also Costa. And we had an opportunity then to 

talk about trade with some of the EU parliamenters. Angela was 

with me. And I think that when we look at how we try to form 

trade agreements, and then we look at the digital part of what it 

is that we are trying to do—— 

And, Mr. Ahmed, you talked about automobiles and how we are 

able to do things. I have got to tell you, this has changed completely the way everybody does business. And the access to global 

markets I think is the thing that is probably the most stimulating 

about this. 

Mr. Atkinson, you talked about how this is growing and growing 

and growing, and every day we seem to find other markets that we 

can get into and we see other opportunities that are there that 

were never there before. And I got to tell you, from a guy who had 

operated a small town business in a little town of about 25,000 people, you can take that opportunity when it comes to parts or automobiles or anything—I am an automobile guy—you can sell that 

product almost anywhere right now globally—for me it is the 

United States, I have to stay with that, I am not going to get shipping overseas—but the other part of it is there for everybody. 

But when it comes down to these agreements, and we talk about 

access to a global market, and we talk about—and I think my experience with the EU was different, because I think it is the intent, 

if we are really going to do trade agreements, that they have to be 

fair. And so tell me, and each of you, if you could, talk about the 

85 

barriers that are put in place any time we try to put an agreement 

together. 

And I think, Mr. Ahmed, you said something that was really 

good, you said certainty comes from enforcement. So all these 

things may be well intentioned as we talk about building these 

agreements and, you know, certainly, I look at the global opportunity, but I also look at we are the strongest economy in the 

world. So whenever it comes time for us to sit down and hammer 

out agreements, and USTR is trying to do those things right now, 

tell me, the digital—in that market, the challenges are there and 

the barriers that actually exist for you that somebody may look at 

and say, no, I don’t see that, but it is there. 

If you can, just kind of run through it so we can explain how difficult it is to actually have a fair and balanced field. While the intent may be there, the actual final result is not. And I know we 

have had conversations about this already and the scope of the 

hearing is about how difficult it is. For you to compete globally, and 

for you to have trade agreements globally that are fair and balanced, tell me some of the things that can take place that the average person wouldn’t see and how it is affecting your businesses. 

Mr. ATKINSON. Well, to be clear, I don’t have—actually, I do 

have a business. I have a business that employs 15 people, and we 

actually are global. We get some revenues overseas, if you will. 

But I think the key issue here is twofold. One, TPP is an important agreement because it has enforceable provisions that are not 

in other agreements. One of the reasons China can get away with 

what it gets away with is because the WTO framework is still quite 

weak, particularly in these new areas. So that is number one. 

Number two, I fully agree with your concern about enforcement. 

And we have long been on the record that we need to have more 

enforcement, we need USTR to do more in these spaces, they need 

more resources to do better enforcement. But you are right, trade 

agreements without enforcement are not worth as much. 

Mr. PADILLA. As a large company, the biggest barrier we face 

is every country we go to, we get the request to build a data center 

locally, even if it is not necessary. I mentioned the Wimbledon app, 

which we supported from five or six data centers around the world, 

it shows the global nature of it. 

Mr. KELLY. Just to interrupt, isn’t that the beauty of the Internet? You don’t have to have bricks and mortars in the place that 

you are doing business. 

Mr. PADILLA. That is correct. You don’t need to. We shouldn’t 

have to have a data center in Brazil in order for a Brazilian to 

watch Serena Williams on the Wimbledon app, but there are regulations proposed that would require that. 

Mr. BECKERMAN. It is a great question. And I think going back 

to also with what Mr. Pascrell was asking, he said why are the 

most innovative companies, the Internet companies that we represent, why have they been born here in the United States and 

grown here in the United States and the lion’s share of the value 

from the Internet sector, which has been the fastest growing part 

of our economy in the last few years, why has it happened here in 

the United States? And a lot of it is because of policy that people 

don’t see and they take for granted every single day. And that is 

86 

the balanced U.S. copyright laws that we have, that is the intermediary liability protections that we have here in the United 

States. Those are two of the most fundamental and key components 

of the Internet economy and why you have seen companies like 

Amazon and Facebook and Google and Etsy and PayPal, all the 

other great Internet companies that exist born in the United 

States, grown in the United States, and now serving 3 billion people around the world. And without exporting also those copyright 

policies, balance, including fair use and intermediary liability protections like we have in the U.S., CDA 230, those are key, and people don’t see it, and they take it for granted every day. 

Chairman REICHERT. The gentleman’s time has expired. 

Mr. KELLY. Thank you. Ms. Shukla, I really would have liked 

to hear from you because this does make it possible for somebody 

your size to actually compete globally. It is a market that was 

never there before. I think the beauty of it all is the fact that you 

don’t have to have large sums of capital to actually compete in a 

global economy. Thanks so much. 

And I yield back. 

Chairman REICHERT. Mr. Neal. 

Mr. NEAL. Thank you, Mr. Chairman. 

I just finished a really good book, The Rise and Fall of American 

Growth, by Robert Gordon, he is a professor at Northwestern University, in which he lays out a series of events that he argues occurred between 1870 and 1970, which he says is the great period 

of economic achievement in American history because of innovation. And he formulates a number of positions, including the combustible engine, including sanitation, including the radio, electricity 

and basic things, and he makes the argument in the post-1970 period that we have had some big achievements, but really nothing 

comes close in terms of what the polio vaccine did or penicillin. 

But he also makes a pretty important argument that has been 

consistent with what you have offered today in which he says that 

our patent system was second to none, and that it was the rule of 

law that really gave us this elevated position in terms of achievement, innovation, and creativity. And he argues that as we have 

proceeded to a globalized economy, that is a lot harder to do. So 

for the panel, maybe discussing the nexus between intellectual 

property rights and digital trade, the whole notion of who has a 

proprietary interest in protecting their own achievement. 

Mr. ATKINSON. Well, thank you, Congressman. By the way, my 

sympathy for having to go through that 700-page book, which I 

have read myself. I just have to say I am not anywhere near as 

pessimistic as Bob Gordon is about our future. I think our future 

around innovation and productivity is still very bright. He is really 

very much of a pessimist. But you are right in the sense of his 

analysis linking intellectual property to growth. 

This is, I think, important to the U.S. in particular because as 

the global innovation leader, innovation relies on intellectual property. And we just wrote something yesterday from a colleague of 

ours, Jason Potts, who is a professor in Australia, who has argued 

that what we are seeing essentially is gunboat intellectual property 

theft. In other words, it is not just companies that steal U.S. intellectual property, it is foreign nations. And they aid and abet the 

87 

theft of U.S. intellectual property solely for competitive reasons, 

solely to gain advantage on us. And that is really a unique thing 

that hasn’t really occurred before in the global economy, using IP 

strategically and illegally. 

And again, I stress that that is why trade agreements have to 

have strong IP protections, because there are just so many jobs. I 

think it was the Department of Commerce report a few years ago 

that showed that something around 30 to 35 percent of U.S. jobs 

were IP-dependent. So this is a very important thing to get right 

in the trade agreements. And TPP does take important steps in 

that direction. 

Mr. PADILLA. If I could mention, Mr. Neal, one other provision 

of TPP that goes to this. IBM certainly believes in innovation. We 

are the largest recipient of U.S. patents for 23 years in a row. The 

newest way for people to steal intellectual property is through 

cybercrime, through breaking into people’s systems and exfiltrating 

data rather than just through copying things, as used to be the 

way in the past. And interestingly, TPP has some good provisions 

in it that require cybersecurity cooperation between the signatories. That is an important new area. And as we talk about digital 

trade and all these benefits, ensuring security not only of data but 

of intellectual property online is essential. And I think TPP takes 

some initial steps in that positive direction. 

Mr. PADILLA. Thanks. I will have to check that book out also. 

It sounds good. 

You know, the United States obviously has done something right 

that has allowed for these companies to grow and have all the benefits for creators around the world. And we think TPP is taking 

steps in the right direction in that regard. But obviously, for all future trade deals, this is going to need to be included, and we are 

going to have to look at what has the U.S. done right that has enabled such incredible innovation here for creators and everybody. 

Ms. SHUKLA. Well, I certainly don’t know much about intellectual property policy, but all I can speak to is my personal experience. I do feel like the benefit I had of getting a patent at that 

young age changed everything for me. It made it possible for me 

to actually even think about creating a business when I was ready. 

And today, I am able to use that business to get FreshPaper to people in the developing world, to do more with it based on my own 

personal mission. I think that has been incredibly valuable and 

gave me a chance. 

Mr. AHMED. I would say that one of the interesting additions 

in the Trans-Pacific Partnership is a chapter at the end called 

small business, the small business chapter. It is the first small 

business chapter. And it is designed to educate small businesses on 

how they can take advantage of the Trans-Pacific Partnership. And 

so provisions that are there to help them can now be, you know, 

made clear to them how they can take advantage of them. And so 

I think that is a very important provision that is new there. 

Chairman REICHERT. Mr. Meehan. 

Mr. MEEHAN. Thank you, Mr. Chairman. 

And I want to thank the panelists. It has been a terrific panel. 

One of the realities of being the last to ask questions is we have 

been through a lot of territory here. So I don’t want to be redunVerDate Sep 11 2014 23:38 Mar 02, 2017 Jkt 022164 PO 00000 Frm 00091 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22164.XXX 22164
88 

dant, but I have certainly—we have, many of us have worked together on things, from cybersecurity to other areas over the time. 

And I think there is just some recurring themes. And so my question would be to use it to either jump on any of these with something that you would like to communicate before you go or is there 

one particular thing we ought to be focused on in your ideas that 

would help us more effectively move? 

When I see themes, the things that concern me the most are the 

inability for us to reach the kinds of agreements that create rules 

of the road in which we start to get common standards that serve 

as a check against the recalcitrant countries like China or Russia 

or others, that if we fail to create these agreements, they will step 

in. The second, of course, is the protectionism and the concern that 

what you are having is countries that may from time to time use 

data localization and other things as a way to sort of protect 

against the incursion of good new products coming into their—they 

are worried about losing market share because of more innovative 

progress. So how much are we using these things as barriers that 

actually have another intention, which is to protect their own? 

And, of course, the last is the protection of these properties once 

we go. If we have a system that is organized in a way in which 

people are respecting the data flow, we have standards, there is 

more of a system that is in place to protect the integrity of that 

information, both companies that may steal as well as nations that 

may steal. 

So with that, what are your thoughts with respect to the overarching themes, or if there is some specific thing we ought to be 

focused on to assure that we create a safer world of opportunity for 

intellectual trade? Why don’t I just go right across. 

Mr. ATKINSON. Well, thank you, Congressman. I don’t have 

anything specific other than, I think, two broader general points. 

One is, a number of countries who are problematic in this space, 

they are doing it not out of malice but out of maybe ignorance, if 

you will. And that is why a TPP framework and expanding it into 

TiSA and others is important because it just sets the rules of the 

road that they know they have to do these things and it is the right 

thing to do. There are other countries who are doing it, they know 

quite well what they are doing, and they are doing exactly as you 

said, they are protecting domestic businesses, they are going after 

U.S. companies. And there it is important, again, to get these countries in trade agreements, but also really to focus more significantly than we have had in the past on enforcement. So I think 

these two things are critical. 

Mr. PADILLA. I would say, as you said, Congressman, much of 

the history of the post-war trading system has been about removing barriers that were already in place, particularly tariffs and 

things like that. These provisions are about preempting barriers, 

preventing them before they are put in place, by and large. And 

that is why it is so important that we try to move ahead on TPP 

as quickly as possible and then replicate these provisions in other 

agreements. Because if we put this off 2, 3, 4 years, what we will 

be doing is trying to take down barriers that are already disrupting 

commerce rather than what we are trying to do today, which is to 

prevent them. 

89 

Mr. MEEHAN. Thank you. 

Mr. BECKERMAN. Thank you. Specifically, when you are looking at China and Russia, obviously two major concerns are censorship and forced localization and ensuring that we have data flows. 

And just generally speaking, I think what we have heard from 

probably everybody is, you know, we don’t want to see a Balkanization of the Internet and have different sets of policies in different 

countries. And we don’t want to have—— 

Mr. MEEHAN. Because sometimes forced localization can also be 

termed forced utilization, in which you are required to go through 

portals or gates that they will set up with competitors of yours. 

Mr. BECKERMAN. Exactly. So we just want to reduce friction, 

you know, connect supply and demand seamlessly. That is important. 

Mr. MEEHAN. Thank you. 

Mr. AHMED. Well, first, thanks to Congressman Kelly, Congressman Kind, and others who have really raised the profile of 

this financial services data flows issue because that is a very important issue going forward to resolve. And then I would also add 

that in the Customs Reauthorization Act and in future trade agreements, addressing this issue of de minimis will be really impactful 

for small businesses because they are often dealing in, you know, 

low denomination items that can be tremendously benefited by 

raising de minimises around the world. 

Mr. MEEHAN. Ms. Shukla, the closing comment is yours. 

Ms. SHUKLA. I really appreciate the opportunity to be here. And 

I think it has been very inspiring for me to hear about everything 

that goes into making this opportunity for me possible and for all 

the entrepreneurs like me, everything that goes into making the 

opportunities that we have today here. And I think I would just encourage you to remember the millions of entrepreneurs across the 

United States who have these innovations and ideas, who have access to these incredible tools, and we just need a little bit of help 

being able to access global markets so that we can really unleash 

those energies. Thank you. I appreciate your help. 

Mr. MEEHAN. Well said. 

Mr. Chairman, I yield back. 

Chairman REICHERT. Thank you. 

And thank you again to the witnesses for your attendance today 

and taking time out of your busy schedules to be here. Excellent 

testimony, as you heard from both sides of the aisle. 

Mr. RANGEL. Mr. Chairman? 

Chairman REICHERT. Yes, sir. 

Mr. RANGEL. Because their testimony was so important, I wonder whether any of you have any suggestions to how this panel 

could be more effective in getting this message out to our country. 

Because, believe me, between your lips and our constituents’ ears 

there is a gap. 

Chairman REICHERT. How about one of you tackle that one? 

Mr. BECKERMAN. I am happy to try. 

Chairman REICHERT. All right. 

Mr. BECKERMAN. I mean, I think probably the best thing, as 

you know, Congressman, all politics are local. And I think there are 

multiple FreshPaper stories in every single congressional district, 

90 

regardless of rural or urban or coast to coast, and there are many 

stories exactly like this. And that is, I think, what we want to tell, 

you know. 

Mr. RANGEL. Let me thank the panel. You have done a great 

job. 

Chairman REICHERT. Thank you, Mr. Rangel. As the ranking 

member knows and members of the panel know, there are national 

business organizations and employee organizations that are out 

there helping us get out the word about the positive effects of trade 

across the country. In fact, some businesses have taken—I think 

Caterpillar has a sticker that they put on each one of their products as to which country they are headed to let the employees know 

that, you just made this piece of machinery and it is headed to Colombia, or wherever. There are other countries that put on their 

paychecks, X percent of your paycheck this week has been as a result of a trade agreement with country whatever. So there are 

those efforts ongoing, but I think sometimes that the rhetoric 

across the country overtakes the common sense and the reality of 

what trade really does for America. 

Your testimony today, the hearing today was really designed in 

a way to help educate America. And we have to continue on with 

that process. And I am going to be looking forward to the next 

product that Ms. Shukla comes out with, because FreshPaper, 

some of the members up here were whispering whether or not that 

might work on our face rather than an apple or a peach. Mr. Kelly, 

he wasn’t asking me that question. But anyway, thank you so 

much for your presence today and your excellent testimony and answers to our questions. 

I am required to say please be advised that members will have 

2 weeks to submit written questions to be answered later in writing. Those questions and your answers will be made part of the formal hearing record. Our record will remain open until July 27. And 

I urge interested parties to submit statements to inform the Committee’s consideration of the issues discussed today. 

With that, the Committee stands adjourned. 

[Whereupon, at 11:46 a.m., the Subcommittee was adjourned.] 

91 

Submissions for the Record 


22164.059

STATEMENT FOR THE RECORD 

Brian Bieron 

Executive Director, Global Public Policy lab 

eBay Inc. 

1250 Eye Street, NW 

Suite 1200 

Washington, DC 20005 

SUBMITIEDTO 

United States House of Representatives Committee on Ways and Means, Subcommittee on Trade 

1102 Longworth House Office Building 

Expanding U.S. Digital Trade and Eliminating Barriers to U.S. Digital Exports 

July 13, 2016 

10:00AM 

Page 1 of 4 
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Chairman Reichert, Ranking Member Rangel, and members of the Subcommittee, I would like to thank 

you for giving eBay Inc. the opportunity to submit a statement for the record on this important topic. 

eBay Inc. is a global commerce leader including the Marketplace, StubHub and Classifieds 

platforms. Collectively, we connect buyers and sellers around the world, empowering people and 

creating opportunity through Connected Commerce. Founded in 1995 in San Jose, California, eBay is one 

of the world's largest and most vibrant marketplaces for discovering great value and unique selection. 

In 2015, eBay enabled $82 billion of gross merchandise volume and today, 58% of our Marketplaces 

business is international. Our platforms enable hundreds ofthousands of US entrepreneurs, small 

businesses, as well as mid-size and large businesses, to reach customers around the world. We 

empower over 164 million buyers globally on our marketplaces with users in 190 countries. Our 

platform facilitates a new kind of a global trade that is truly beneficial for Main Street businesses across 

America. 

eBay Inc. is an Internet and mobile technology-based business, but in the 21st Century global economy, 

every business that operates internationally in any significant scale depends on access to, and 

transmission of, digital goods and services, including logistics, online services, distribution networks, 

finance and professional services. The Internet accounts for 21% of GOP growth in advanced economies 

and facilitates $8 trillion each year in e-commerce. The United States is the unquestioned world leader 

in Internet-enabled business, innovation and entrepreneurship. But data moving across borders is not 

just an Internet industry phenomenon; it impacts every business, including manufacturers, agricultural 

businesses, and financial services providers. McKinsey reports that 75% of the impact of the Internet is 

being realized by traditional industry.i The US International Trade Commission estimates that digital 

trade has already boosted US gross domestic product by 3.4% to 4.8% through enhanced productivity 

and reduced international trade costs, and the effect on US total employment ranged from no change to 

an increase of 2.4 million full-time equivalents.ii 

My team at eBay Inc. has spent the last four years conducting research on the growth of global trade by 

technology-enabled small businesses.m In April 2016, we released the United States Small Online 

Business Growth Reportw which provides an in-depth look at trade and growth figures for eBay-enabled 

small businesses and entrepreneurs (annual sales of $10K or more) in all 50 states as well as the District 

of Columbia. The report also provides a state-by-state snapshot of the counties with the most eBayenabled small business activity per capita. 

The report findings reveal that nearly every eBay-enabled small business in each state is an exporter, 

and that eBay-enabled small businesses as a whole have been experiencing sales growth rates that 

exceed their state economy averages. The research also shows that active eBay-enabled small 

businesses emerge from communities nationwide, rural and urban alike. These findings further bolster 

the argument that the technology-enabled platform commerce model, which significantly reduces the 

cost of doing business over distances, is a highly inclusive model of trade. For example, our research 

revealed that 97% of eBay-enabled small businesses in the United States export. This figure dwarfs the 

export activity of traditional US businesses, which stands at approximately 1% nationwide. Additionally, 

nationwide, eBay-enabled small businesses that export reach an average of 18 foreign markets. 

Alongside these impressive statistics, there are many excellent examples of small business success 

stories including: 

Page 2 of 4 
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The McClellan Family from Ferndale, Washington, started Hardware Sales, formerly Powder 

Sales, in 1962, specializing in sales of dynamite to loggers, miners, and road builders. This 

family-owned business became an integral part of their small Washington state community, as 

the one-stop hardware store. However, in 2007, the success of mainstream big box retailers, 

forced the family to adapt to the changing retail landscape by opening a Hardware Sales 

Internet division. That's when they brought in Steve Douge, who had experience in online sales 

to run their Internet division. What started as an eBay only operation has now expanded to its 

own website. The company regularly gives back to the community through their work with the 

local Boys and Girls club, as wel l as donating tools and equipment to organizations such as 

Habitat for Humanity and other non-profit building projects. Hardware Sales exports around 

25% of its products. 

Adam Wexler of Brooklyn, NY operates StereoBuyers, a locally owned, family-run business 

focused on buying and selling High-End pre-owned HiFi audio equipment. The seed of 

StereoBuyers was planted in the mid1990s. As a coll ege student, Adam wanted a high end 

stereo, but could not afford one. That's when he got the idea to buy and sel l stereo equipment 

that had been traded into a local HiFi shop. After graduation, Adam continued to run 

StereoBuyers part time until 2009, when he left his fu ll -time job as one of Manhattan's top highend AV sa lesmen and designers to pursue the business ful l-time. In 2012 Hurricane Sandy 

completely wiped out Adam's business and putting his warehouse and products in 7 feet of 

water. Luckily, through hard work and determination, Adam and the Stereo Buyers team were 

able to build themselves back up. Stereo Buyers exports about 30% of its products. 

This trade activity represents a new model of SME exporting that has emerged in parallel to the SME 

"Global Va lue Chain" model where sma ll enterprises engage in trade as a component of a giant 

commercial enterprise. We have coined the term "Global Empowerment Network to describe this new 

model by which sma ll businesses are able to create a storefront presence online and compete directly in 

global markets through e-commerce platforms with vibrant customer bases. The Global Empowerment 

Network combines a set of services and conditions enabling SMEs to transcend borders, reach 

customers on a global scale, and facilitate business transactions. 

There are four key building blocks that fue l the Global Empowerment Network: (1) Connectivity to the 

globa l Internet at lost cost and without gatekeepers; (2) Global platform-based marketing, marketplace 

and payment services; (3) Efficient, modern and "connected" package-level logistics and delivery 

services; and (4) Lega l, regulatory, and public policy framework supporting direct SME-to-consumer 

global commerce. 

Our United States Small Online Business Growth Report also provides key recommendations for policy 

makers to drive even greater economic growth among small American business that use the Internet to 

export. These include: 

Increase Low Va lue Customs "De Minimis" Thresholds Across the Globe 

Support the Trans-Pacific Partnership Agreement (TPP) and Other Efforts to Modernize Trade 

Policy 

Modernize Postal Systems to Support Small Business Digital Trade 

Promote the US Standard of Inte ll ectual Property Law in Trade Agreements 

Ensure a Free and Open Internet 

Explore Flexible International Regulatory Cooperation Solutions 

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Provide Coordinated Export Promotion Assistance to Internet-Enabled SMEs 

The kind of cross-border trade being done by these, and hundreds of thousands of other "micromultinationals" spread across America, is growing rapidly. Research from Progressive Economy finds 

that low-value or "micro" US exports increased by 103% between 2005 and 2010, more than twice the 

increase for all exports.' Moreover, the 2013 World Economic Forum (WEF) Enabling Trade report 

found that the use of technology platforms can reduce the burdens small businesses face when selling 

overseas, increasing cross-border small business sales by 60-80%.vi 

Finally, it is key to realize that when examining the barriers and opportunities for U.S. business in the 

digital age, our discussion is not merely about business or policy; it is about people. Globalization and 

trade are fundamental realities of the world in which we live. Unfortunately, a significant number of 

people have not yet been able to directly take part in the global marketplace because they own or work 

in businesses that have, traditionally, been too small or too remote. But now the Internet, and the 

global data-based businesses and platforms that underpin 21st Century commerce, are enabling small 

business and consumers, for the first time, to truly enjoy the benefits of direct participation in the global 

market. 

We sit at the dawn of a new era of globalization that is far more inclusive than the one that preceded it 

-a future where millions of small businesses from across the US can participate in their local economy 

and also increase revenue through access to customers around the world. This is good economics 

because it means more growth and wealth, and it is good for society because it means a more inclusive 

future. We need to make the right policy choices to achieve this future. 

Chairman Reichert, Ranking Member Rangel, and members of the Subcommittee, we respectfully 

submit this statement for the record and pledge to work with you to ensure that US small businesses 

and consumers can realize the true benefits from the Internet. 

1 McKinsey Global Institute, Internet Matters: The Net's Sweeping Impact on Growth, Jobs, and Prosperity {May 

2011) available at: http://www.mckinsey.com/insights/high_tech_telecoms_internet/internet_matters 11 U.S. International Trade Commission, Digital Trade in the U.S. and Global Economies, Part 2 available at: 

http:/ /www.usitc.gov/p u blications/332/pu b4485.pdf 111 The Full range of research can be found here: http://www.ebaymainstreet.com/lab 

1v Available at: http://www .ebaymainstreet.com/policy-papers/us-small-online-business-growth-report 

v Gresser, Edward. "Lines of Light: Data Flows as a Trade Policy Concept." {2012). 

vi World Economic Forum, Enabling Trade (2013) 

Page 4 of 4 
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United States House of Representatives 

Committee on Ways and Means 

Subcommittee on Trade 

Hearing on Expanding U.S. Digital Trade and Eliminating Barriers to 

U.S. Digital Exports 

Testimony 

by 

Etsy 
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Chairman Reichert and and Members of the House Ways and Means Trade Subconunittee, thank 

you for the opportunity to submit written testimony on the importance of expanding U.S. digital 

trade and eliminating barriers to U.S. digital exports. 

Etsy is a marketplace, founded in 2005, where people around the world connect to make, sell, 

and buy unique goods. Our community is the heart and soul of Etsy and is made up of creative 

entrepreneurs who sell on our platform, thoughtful conswners looking to buy ,unique 

goods in our marketplace and the Etsy employees who maintain our platform and nurture our 

ecosystem. Our commW1ity also inc1udes the retailers who participate in our Wholesale offering 

and the manufacturers who form responsible partnerships with Etsy sellers. As of December 

2015, Etsy has 1.6 million active sellers present in almost every country around the world -

selling everything from food to furniture. We have 25 million active buyers worldwide, and in 

2015 our sellers sold $2.39 billion worth of goods. 

The internet has made it easier for anyone to start and grow a business, and Etsy sellers typify 

this new face of digitally-enabled entrepreneurship. Fully 86% of our US sellers are women, and 

most operate their businesses on their own out of their home, using the Etsy platform to reach 

consumers around the world. While 30% operate their creative business as their sole occupation, 

for the rest it's an important source of supplemental income, contributing an average of 15% to 

annual household income. 1 

1 "Building an Etsy Economy: The N_ew Face of Creative Entrepreneurship", 2015. www.etsy.me/sellercensus 
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The creative entrepreneurs who sell on Etsy may not be the businesses one imagines when 

considering the exporters who could benefit from global trade agreements, yet as of March 31 , 

2016, 30.3% of gross merchandise sales on Etsy involve a buyer or a seller outside the United 

States. Many Etsy sellers start selling goods internationally from the moment they open their 

shops. Unfortunately, existing trade laws have not kept up with the growth of global ecommerce 

and the opportunities it provides to micro-businesses. 

Most independent, creative businesses lack the infrastructure and information to navigate 

complicated international trade rules. Customs and duties vary by country, and credible 

information about each country's requirements can be difficult to find . Packages are often 

delayed in customs or subject to unforeseen import taxes that the buyer must pay before 

receiving their package. Package tracking often stops at the border, creating UIIDecessary friction 

in international transactions. In the face of these challenges, buyers may reverse transactions or 

request refunds, the cost of which the seller often bears. 

In addition to customs and duties requirements, e-commerce regulations vary widely between 

countries. Discrepancies in consumer protection or privacy laws pose a challenge for individual 

sellers, who must find relevant infonnation on requirements for each country before shipping an 

item, or who may unknowingly break local laws when they allow buyers from other countries to 

purchase their goods. International trade agreements offer opportunities to reduce the barriers 

that prevent digitally-enabled micro-businesses from exporting their goods. 
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A Universal De Minimis Customs, Duties and Tax Exemption 

Many countries already set customs and duties exemptions for goods under a specific monetary 

value, yet these de minimis thresholds vary widely between countries. For example, goods under 

$800 are exempt from US customs and duties, while anything over roughly $20 is subject to 

customs and duties in Canada. These duties, tariffs and taxes create considerable friction for US 

exporters, leading to reversed transactions and forgone sales for the micro-businesses who sell on 

Etsy. Negotiating a universal low-value customs, duties, and tax exemption that covers most 

peer-to-peer transactions would eliminate the biggest barrier that internet-enabled entrepreneurs 

face. 

Open Customs and Duties Data 

Customs and duties vary by country, and credible information about each country's requirements 

and restrictions can be difficult to find . Whereas a traditional small business might expand 

incrementally, digital platforms like Etsy allow a small business to offer her products worldwide 

from the moment she opens her shop. For an Etsy seller, the challenges arise not in breaking into 

a new market, but in figuring out what rules apply to a particular product in a particular country 

after the purchase has been made, when there is considerable pressure to ship a good quickly. 

These sellers scour the internet for credible infonnation, occasionally canceling a transaction 

where infonnation is unavailable, or simply shipping the good and hoping f?r the best. While 

many trade agreements include provisions to make this infonnation pubJicly available, there is an 

opportunity to bring this requirement into the 21st century by requiring governments to make 
99 

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relevant information available in a common format through an open API, which third-party 

developers could use to create user-friendly tools for their customers. 

Intermediary Liability 

In the US, Section 230 of the Communications Decency Act (CDA 230) protects intermediaries 

from liability for the actions of their users. This key principle of intermediary immunity (also 

called "safe harbor") from liability has helped Etsy grow and evolve over the last ten years, 

enabling 1.6 million active sellers to open an online shop and pursue their passion. Online 

marketplaces must create a safe and trusted environment for transactions to occur, but should not 

incur the same legal responsibilities and liabilities as those who use their platforms. Including 

intermediary liability provisions in trade agreements would allow startups to build new global 

platforms without creating undue risk, and enable these platforms to provide opportunities to 

micro businesses around the world. 

Thanks to the power of the internet and an increasingly global economy, would-be entrepreneurs 

can start a business and reach a global market of consumers for the price of an internet 

connection. Policy makers should take advantage of the oppot1unities to promote 

entrepreneurship at every level by reducing barriers micro-businesses face when operating at a 

global scale. 

4 
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U.S. House of Representatives Ways & Means Committee 

Comments on Expanding U.S. Digital Trade and Eliminating Barriers 

to U.S. Digital Exports 

Presented by: 

Jennifer Topolski, Owner, J. Topolski 

July 13, 2016 

Chairman Reichert and Members of the House Ways and Means Trade Subcommittee, thank you for 

the opportunity to submit written testimony on the importance of expanding U.S. digital trade and 

eliminating barriers to U.S. digital exports. As a creative entrepreneur who operates a global ecommerce business, I believe that there are several opportunities to reduce the barriers I face to 

exporting my goods. 

I graduated from college in 2005 with an illustration BFA and immediately began working as a 

freelancer in various creative industries. I worked as a fine artist assistant, a stylist, a photo retoucher, a 

graphic designer, a ceramicist, and an illustrator, all while working on my own art and design as time 

allowed. In 2008 a friend told me about Etsy, an online marketplace where anyone could sell their 

handmade work, and I decided to open up a shop selling my ceramic work and jewelry. Slowly and 

steadily, I learned the ins and outs of running a business; particularly an online business. I worked 

constantly to learn how to improve my search engine ran kings, how to handle customer service, how to 

file sales taxes, and the mountains of other things small business owners must figure out. My sales 

consistently improved and I began to turn down freelance work in favor of working on my own business. 

By 2013, I no longer accepted contract work at all, and I now have my first "full-time job" running my 

own business. 

It is an amazing thing to live in a time where anyone with an internet connection, a camera, and a craft 

can sell their work to anyone in the world. It opens a tremendous opportunity for countless people with 

an entrepreneurial spirit, who historically may not have had the resources to begin a business. Whether 

these businesses provide supplemental income for stay at home parents, something to help make ends 

meet between jobs, or a full-time income, most of us would not have been able to do this before the 

internet age. 

The internet has created an on-ramp to entrepreneurship, but now more and more micro-entrepreneurs 

are entering a field that is not structurally prepared to let our businesses run smoothly. Yes, you can 

learn a lot from a Google search, but it doesn't replace the legal department that a traditional business 
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would have in-house. In a global marketplace, I frequently struggle to make sense of international laws. 

After doing all the work to design, create and sell my jewelry, I then have to put on my international 

exporter hat, investigating questions like: Can I ship this ring to Australia> Is this gemstone Kimberly 

Process certified? Is precious metal allowed into the country via the postal service at all, or only Fedex> 

Is silver considered fine jewelry by their pasta/laws, or just gold and platinum? What is the de minimis 

VAT threshold for the country I am shipping to? Does this country require a packing slip on the outside 

of the box to clear customs? Is their postal service on strike? If so, what do I do? 

These are typical questions I need to think about, and many industries beyond jewelry have similar 

concerns. I rely on the USPS website and their posted international restrictions, although I don't know 

how frequently it is updated. 

In addition to investigating the laws that govern my products, I also must manage my customers and 

their expectations. "When can I expect my package?" is a perfectly reasonable question, but 1-5 weeks 

is not a very reasonable answer. Unfortunately, it is an honest one. Once a package leaves the US, I 

cannot do anything to retrieve it, or often even track it. I don't know postal laws in other countries, and 

even if I can find the information in English, I may not be able to explain it well to a customer. I have 

found a few websites that estimate VAT and GST taxes, but sadly many customers are still outraged at 

the amount of money they must pay to their customs agency for the privilege of international shopping. 

I cannot immediately absorb refunds for packages that don't make it to the destination in time for an 

event or are refused based on the customs charge, and waiting for an unclaimed package to return 

back to me so I can refund a customer is stressful for both of us. 

The greatest single thing that policymakers can do to help creative micro-entrepreneurs like me, who 

are international exporters in our own right, is to negotiate a higher de minimis customs, duties and tax 

exemption in trade negotiations. The US recently increased our de minimis customs exemption to $800, 

which will help US sellers source materials and process returns. Using our de minimis as a benchmark, 

we should encourage our trading partners to increase their own de minimis exemptions, helping 

digitally-enabled micro-exporters like me reap the benefits of the global economy. 

Additionally, instead of all of this information living online through various and cumbersome portals, we 

should require our trading partners to make information about their customs, duties and import taxes 

available in a common format via an open API, so this data can not only be accessed easily, but thirdparty companies and organizations can build effective and reliable tools for micro-entrepreneurs. 

Running any small business is an overwhelmingly difficult task, but online businesses have some 

unique hurdles to clear, particularly when it comes to exporting our goods. International trade deals 

have the potential to reduce the barriers we face when exporting our goods, while increasing the policy 

transparency that is vital to all of us trying to stay on the right side of the laws. As our employment 

culture shifts toward a contract-based society, being self-employed will become increasingly common. 

The more resources we have to run our businesses smoothly, and legally, the better it will be for our 

entire economy. 

2 
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EXPANDING U.S. DIGITAL TRADE AND ELIMINATING BARRIERS TO U.S. DIGITAL EXPORTS 

COMMENTS OF PUBLIC KNOWLEDGE 

I. STATEMENT OF I NTEREST 

Public Knowledge is a non-profit organization dedicated to promoting freedom of expression, an open 

intemet, and access to affordable cmmnunications tools and creative works. 

As part of this mission, Public Knowledge advocates on behalf of the public interest for a balanced intellectual 

propetty system, particularly with respect to new and emerging technologies, and for cmmnunications policy 

that fosters such emerging technologies. Public Knowledge is grateful for the opporttmity to address the issues 

raised by U.S. trade policy in this context. 

II. I NTRODUCTION 

U.S. trade policy should encourage policies that promote itmovation, competition, and the rights of 

intemet users. These goals can be achieved in prut through provisions that promote free expression and privacy, 

balanced intellectual propetty rights, protections for intemet intennediaries and presetvation of the open 

intemet, as well as provisions that reaffinn contracting parties' cmmnitments to expanding intemet access and 

protecting hwnan rights online. Fmther, U.S. trade negotiations should sllive for greater transparency and 

inclusion in the negotiation process. Lastly, trade agreements should not strive to dictate policy choices in 

detail, but should provide high-level principles and guidelines, allowing patties flexibility in implementation. 

U.S. intemet companies ctmently dmninate the market for intemet services abroad,

1 and U.S. trade 

policies have the potential to affect global intemet policy for billions ofusers. 2 U.S. trade policy can benefit 

both commerce and the interests of consumers by promoting a free, open, and competitive intemet. Intemet and 

telecmmnunications setvices contribute substantially to the GDP,

3 overall productivity, and employment.4 The 

1 See Markham C. Erickson & Sarah Leggin, "Exporting Internet Law Through International Trade Agreements: Recalibrating U.S. 

Trade Policy in the Digital Age" ("Expotting Internet Law"), 24 Catholic Univ. J. of L & Tech. 317, 324 (20 16); see also Susan 

Ariel Aaronson, "The Digital Trade Imbalance and Its Implications for Internet Governance," Global Commission on Internet 

Governance Paper Series: No. 25, 7 (Jan. 20 16); See Exporting Intemet Law at 324; Ali Sternberg & Matt Schreurs, "Modemizing 

Liability Rules to Promote Internet Trade," CCIA Research Paper, 2, http://www.ccianet.org/wp-content/uploads/2013/09/CCIALiability-Rules-Paoer.pdf. 2 Globally, more than 3 billion people are using the internet today, with 2 billion of those users situated in developing cmmtries. ITU, 

"ITU Releases 2015 ICT Figures, Statistics Confirm ICT Revolution of the Past 15 Years" (May 26, 20 15), 

https://www .itu.int/net/pressoffice/press _releases/20 15/1 7 .aspx. 

3In 20 14, the internet-related industry contributed approximately 6% percent ($966.2B) to the U.S. real GOP. Stephen Siwek, Intemet 

Assoc iation, Measuring the U.S. Internet Sector, 4 (2015), http://intemetassociation.org/wp-content/uploads/201 5/12/IntemetAssoc iation-Measuring-the-US-Internet-Sector-1 2-10-1 5.pdf. Another study shows that, in 20 10, the intemet contributed 1.9 percent 

to GOP in developing countries ($366 billion, $1 19 per capita), and 3.4 percent to GOP in developed countries, (about $1,488 per 

capita). Olivia Nottebohm, eta!., "Online and Upcoming: the Internet's Impact on Aspiring Cmmtries," 8 (2012), 

http://www.mckinsey.com/-/media/mckinsey/dotcom/client service/high%20tech!pdfs/internet aspiring executive summary v2.ash 

· 

4 A recent repott for the U.S. International Trade Commission found that the internet-related productivity gains have increased the 

U.S. real GDP by 3.4-3.5%. The same shtdy determined that the internet led to a 1.8% increase in employment. See USITC, "Digital 

Trade in the U.S. and Global Economies," Patt2 Pub 4485 Investigation332-540 (2014). See also Google, "Enabling Trade in the Era 

oflnfotmation Teclmologies: Breaking Down Barriers to the Free Flow oflnfonnation,'' 3 (2011) ("Google Trade Paper") ('The 

Intemet has ... "enable[d] the emergence of new business models, new processes, new inventions, new and improved goods and 

services and ... increase[d] competitiveness and flexibility in the economy, for example by the increased diffusion of information at 
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OECD has stated the intemet's impact on productivity "may exceed the effects of any other technology enabler 

to date, including electiicity and the combustion engine."5 Done well, trade agreements can support these gains 

by promoting substantive nonns for adapting domestic policymaking to the intemationalization of business 

practices in the teclmology sector.

6 Done poorly, trade agreements can lock in policies that fail to translate to 

diverse national contexts and quickly become obsolete in an era of rapid change. 

Ill. I NTELLECTUAL PROPERTY PROVISIONS IN TRADE AGREEMENTS MUST BALANCE THE INTERESTS OF 

INTELLECTUAL PROPERTY OWNERS AND THE PUBLIC. 

To ensure that the intemet will continue to drive innovation, productivity, and free expression globally, 

policymakers must take account of how the monopoly rights created by intellectual property law are frequently 

extended far beyond what is necessary to promote creativity and the dissemination of knowledge and culhlre. 

To that end, where trade agreements address intellechlal propetty, the United States should demand a 

framework of limitations and exceptions to intellechml propetty tights that is at least as flexible as those in 

cunent the U. S. system, and that pennits cotmtries to carefi.Illy weigh the costs of expanding or creating new 

fonns of intellechlal propetty. Finally, U.S. trade policy should preserve sufficient flexibility for Congress and 

other national lawmakers to develop domestic intellechml property law and policy. 

A. MAINTAINING CONGRESS'S ROLE IN I NTELLECTUAL PROPERTY POLICY 

U.S. intellechlal propetty rights must serve to "promote the progress of science and the useful atts."7 

Trade agreement provisions that restrictively prescribe elaborate intellechml propetty regimes can tmduly 

constrain Congress's legislative autonomy. To the extent that trade agreements touch on domestic policy issues 

at all, they should focus on establishing high-level guidelines, rather than specific implementations. Fmther, 

Congress should maintain its role in shaping U.S. intellechlal propetty policy through active patticipation in and 

oversight ofU.S. trade negotiations. 

8. ENSURING BALANCED INTELLECTUAL PROPERTY RIGHTS THROUGH LIMITATIONS AND EXCEPTIONS 

Excessive IP regimes impose economic and social costs on society. 8 Robust limitations and exceptions are 

necessary to protect innovation, growth, and free expression. They also play a valuable role in digital trade. For 

example, in2011 , "about one out of every eight workers in the United States [was] employed in an industly that 

benefitt[ed]" from limitations and exceptions to copyright. 9 Fmther, these industries are responsible for a 

substantial portion of U.S. exp011s. 10 IP regimes without adequate litnitations and exceptions would burden 

these industries--inhibiting market entry for new entrants, reducing investment in innovative setvices, and 

lower cost." This impact is not limited to internet-based industries, and extends to businesses in traditional sectors. See James Manyika 

& Chales Roxburgh, ' 'The Great Transfonner: The Impact of the Internet on Economic Growth and Prosperity," 3 (Oct. 2011), 

http://www.mckinsey.com/-/media/McKinsey!Industries!High%20Tech/OurO/o201nsights/The%20great%20transfonner/MGI Impact 

of Iutemet on economic growth.ashx. 

5 OECD, "Broadband and the Economy: Ministerial BackgrDlmd Report," 8-9 (May 2007), https://www.oecd.org/sti/40781696.pdf. 

6 See Graeme Dinwoodie, "The Intemational Intellectual Property Law System: New Actors, New Institutions, New Sources," 10 

Marq. Intellecntal Propetty L. Rev. 205 (2006). 

7 U.S. Const. , Att. I, Sec. 8. 

8 Jodie Griffin, "The Economic hnpact of Copyright" ("Griffin"), Public Knowledge, 1 (20 12), 

https://www.publicknowledge.org/filesffPP%20Econ%20Presentation.pdf. 

10 See id. at 7. 
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increasing costs. 11 

For developing countties, flexibility in the scope ofiP tights and a robust framework of limitations and 

exceptions may also be cmcial. Excessive intellectual propetty monopolies can actively impair those countries' 

economic and teclmological development, without providing sufficient conesponding benefits to 

rightsholders.

12 

Historically, U.S. trade agreements have largely failed to provide for limitations and exceptions to 

intellectual property tights. 13 While KORUS marked a departme insofar as it explicitly pennitted limitations 

and exceptions, and required litnitations on intennediaty liability, future trade agreements should go fi.uther 

towards expressly requiring such protections. While the TPP requires that signatories «shall provide" extensive 

intellectual property tights and enforcement mechanisms, it requires that signatories «shall endeavour to 

achieve" appropriate litnitations and exceptions. Going fmward, U.S. trade policy should ensure that trade 

agreements mandate pa11ies to achieve balance in their intellechml prope1ty system through the provision of 

adequate litnitations and exceptions. 

1. BALANCED COPYRIGHT AND PATENT LAWS 

In order to optimize incentives for creativity and maxitnize economic and social benefits, copyright 

and patent laws must contain a variety of balances, including: (a) adequately litnited tenns of copyright 

protection, (b) exhaustion of copyright and patent rights, (c) litnitations and exceptions dming the tenn of 

protection, such as the idea/expression limitation and fair use in copy1ight, and (d) propmtionate remedies. 

While the TPP requires signatories to «recognize the impmtance of a rich and accessible public domain," 14and 

requires that intellechml propetty provisions must be implemented «taking into accotmt the interests of relevant 

stakeholders, including rights holders, service providers, users and the public,"

15 fuhrre agreements should 

provide more specific guidelines .. 

a. COPYRIGHT TERM 

Excessive copytight tenus hann the public domain, which «provides an immense social and economic 

benefit to all sectors of society.," without providing conesponding benefits.

1

6.yhe last extension to the U.S. 

copyright tenn, from the life of the author plus 50 years to the life of the author plus 70 years, "revealed that the 

tenn extension had a negligible effect on investment decisions." 17 This is because "from the perspective of 

investors, 'the tenn of protection in the USA had nearly the same present value as a petpetual copytight 

tenn. "'18 An international study on copytight tenn confinned that tenn extension "[had] no impact on the output 

II See generally Griffm. 

12 See id. , 8-9 citing Ian Hargreaves, Digital Oppottunity: A Review oflntellectual Property and Growth ("Hargreaves"), 24 (2011 ) 

("For low income countries with a weak scientific and teclmological infrastmctnre, stronger IP protection has little effect on their own 

economic growth and may even hinder it - while having no significant effect on the likelihood of developed country industry seeking 

to sell goods there"); see also Growers Review oflntellectnal Property, HM Treasury, 59 (2006) ; Fisher & McGeveran, The Digital 

Learning Challenge: Obstacles to Educational Uses of Copyrighted Material in the Digital Age, Berkman Center for Internet and 

Society, 12-13, (2006). 

13 Exporting Internet Law at 341 . 

14 TPP Art. 18. 15. 

I S TPP Art. 18.4. 

16 Lette r from Public Knowledge et al. to ministers and lawmake rs ofTPP negotiating countries("Coa lition Letter") (July 9, 

20 14), htt~LLwww.Qub icknow dge.or.gfdocumentsL!pR·Ietter-on-coRy.rlghHerm. 

17 Griffin at 4; HM Treasury, Growers Review oflntellectual Property, 52 (2006). 

1a Jd. 
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of creative works." 19 

But overly long copyright tenus hann those who depend on access to works in the public domainincluding technology companies, libraries, archives, museums, sh1dents, artists and independent content 

creators, and the public at large. According to one sh1dy, «[e]conomic evidence is clear that the likely 

deadweight loss to the economy exceeds any additional incentivizing effect which might result from the 

extension of copytight tenn beyond its present levels."20 

Given the scant benefits and high social and economic costs of overly long copyright tenns, it's clear 

that such tenus exact «a net welfare loss to society, and effectively amount[] to a transfer of wealth to a small 

munber of multinational copyright-holding companies ... at the cost of those who depend upon access to 

copytight works that would othetwise be in the public domain[.]"

21 Unforttmately, the copyright tenn 

provisions in the TPP require that some countties extend their tenus, and fiuther lock in the U.S.'s already 

excessive tenn. 22 Going fotw ard, U.S. trade policy should avoid this policy mistake. 

b. LIMITATIONS AND EXCEPTIONS IN COPYRIGHT 

Limitations and exceptions to copytight protection are essential to the internet's continued success as 

a platfonn for economic growth, dynamic innovation, and free expression.

23 In the United States, these 

limitations include the idea/expression and fair use doctrines. 

Idea/Expression 

The limitation of copyright protection to creative expressions24 «recognizes that copyright law should 

give the public flexibility to use, share, analyze, anange and redisttibute facts, news, and infonnation without 

fear ofliability."25 This «has had a vety real, practical effect on the Intemet and the infonnation economy. One 

need only think of how often, every day, the Intemet is used to investigate facts and how this adds to our lives," 

including through the ability to fact check news sources, investigate investment opporttmities, and research and 

evaluate products and services online. 26 Not all U.S. trading partners have such protections.

27 

Fair Use 

Section 107 of the United States copyright law pennits certain uses of creative works notwithstanding 

the author's exclusive tights in the work. It explicitly allows for «criticism, conunent, news repmting, teaching 

including multiple copies for classroom use), scholarship, or research" as well as for uses that may be 

19 Id. at 5; I.P.L Png and Qiu-hong Wang, "Copyright Law and the Supply of Creative Work: Evidence from the Movies," Review of 

Economic Research on Copyright Issues (2009). 

20 Ian Hargreaves, Digital Opportunity: A Review oflntellectual Property and Growth, 19 (2011). 

21 Coalition Lette r at 1. 

22 TPP Art. 18.63. 

23 See Joshua P. Meltzer, Maximizing the Opportunities of the Internet for International Trade. E15 Expert Group on the Digital 

Economy- Policy Options Paper. E1Sinitiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) 

and World Economic Forum ("E15 Paper") (2015). ("Initial research shows that when a country ado pts balanced copyright 

rul es and other limitations such as fa ir use, companies in these coun tries generate higher revenues, create more jobs, and 

spend more on R&D, when compared to countries with more closed lists of copyright exceptions.") 

24 See Feist Pub 'ns, Inc. v. Rural Tel. Serv. Co., Inc. , 499 U.S. 340, 346 (199 1) 

2s Exporting Internet Law at 328. 

26Id. 

27 See id. 
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considered «fair" tmder an application of a fom-patt test. Comts in the United States "have relied upon fair use 

and other limitations in copyright in upholding the legality of intemet search engines and temporaty copies that 

facilitate interoperability between computer programs and the development of web hosting setv ices."28 Without 

fair use, "a website could not provide snippets and links to other websites; an intemet setv ice could not 'cache' 

copies of files, which allows an intemet browser to respond in a matter of milliseconds; and attists could not 

produce mash-ups of existing content to create new works."29 And, innovations in cloud computing setvice, 

which rely on fair use,

30 have proven a substantial contributor to the global market for intemet setv ices. 31 

Limitations and exceptions like fair use are also critical to the ability consumers and end users of 

teclmology to make new uses of existing technologies and creative works. As one study fotmd, «millions of 

citizens itmovate to create and modify consumer products to better meet their needs."

32 Where users may freely 

itmovate and share the results of their creativi~, «social welfare is vety probably increased . . relative to a 

world in which only manufacturers innovate." 3 User innovations likewise drive innovation at the industiial 

level. 3

"Therefore, U.S. trade policy should promote the inclusion oflimitations and exceptions provisions in 

trade agreements that pennit flexible fair use-like systems. Future agreements should clarify this point. 

C. PROPORTIONATE REMEDIES 

To the extent trade agreements require the implementation of particular remedies for intellectual 

propetty infringement, those remedies should be prop011ionate. This includes limits on exemplaty and detenent 

damage awards under copyright laws. Such awards can be many magnitudes larger than any actual hann caused 

to the copyright holder. Even the threat of high statut01y damages can discourage investment in business models 

or teclmologies that rely on uses of copytighted content, «increase[ing] the costs of regulat01y uncertainty for 

teclmology and start-up inventors."35 

A diverse an<ty of stakeholders have recognized the need for refonn of the copytight statutory 

damages regime in the United States, including consumer advocates, teclmology companies and trade 

organizations, federal judges, and the Department ofCommerce?6 U.S. trade policy should avoid locking in this 

28 Griffin at 9; see also Exporting Internet Law at 333. 

29 Expanding Digital Trade and Reducing Barriers to U.S. Digitial Expotts: Hearing Before the H. Subcomm. On Trade, 114th Cong. 

(201 5), Written Testimony of Internet Assoc iation, 10. 30/d. at 334-335 ("a cloud technology company operating in a jurisdiction la cking a fair use principle must weigh the potential 

of litigation before innovating and bringing a product or se rvice to market. Without a fl exible fair use standard, technology 

companies in most jurisdictions must rely on a regulatory or legislative body to approve specific uses or technologies.") 

31 "The global market for cloud setvices (or Infrastmcture-as-a-Setvice, "laaS") is projected to grow from $23 billion in 2015 to $34 

billion in 2018.136 Global spending on IaaS was projected to reach $16.5 billion in 2015, an increase of over 30% from 

2014."Expotting Intemet Law at 334. 

32 Eric von Hippe! eta!., The Age of the Consmner-I.nnovator ("von Hippe! (2011 )"), MIT Sloan Mgmt. Rev., Fall2011 , at 28. 

33 Eric von Hippe!, Democratizing Innovation, 12 (2005) (citing Joachim Henkel and Eric von Hippe!, "Welfare Implications of User 

Innovation," MIT Sloan Working PaperNo. 4327-03 (2005)). 

34 Von Hippe! (2011) at 29. 

3s Griffin at 5; Matthew le Merle eta!., The Impact of U.S. Internet Copyright Regulations on Early- Stage Investment A Quantitative 

Study ("le Merle"), Booz & Co., lO (2011 ). n one study, "89% of venture capitalists interviewed said that "llllcertain and potentially 

large damages made them uncomfortable investing in [digital content intermediaries]." Griffin at 5; le Merle at 18; Computer and 

Commmtications Industry Association (CCIA), Copyright Refotm for a Digital Economy ("CCIA Copyright whitepaper"), 18-20 

(201 5), https://www.ccianet.org/wp-contentJuploads/20 15/08/Copvright-Refotm-for-a-Digital-Economy.pdf. 36 See, e.g., Jed. S. Rakoff, "Brace Lecture: Copyright Damages: A View from the Bench," 62 J. Copyright Soc'y 377 (2015); 

Pamela Samuelson & Tara Wheatland, "Stahttory Damages in Copyright Law: A Remedy in Need of Reform," 51 Wm. & Mary L. 

Rev. 439 (2009); Public Knowledge, Intemet Blueprint (2012), http://internetblueprint.org/issues/strengthen-the-publics-fair-userights-in-copvrightJ; Mitch Stoltz, Collateral Damages: Why Congress Needs to Fix Copyright Law's Civil Penalties (Jul. 24, 2014), 

httvs://www.eff.org/wp/collateral-damages-why-congress-needs-fix-copvright-laws-civil-penalties; CCIA Copyright Whitepaper at 

4 
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regime in the United States through trade agreements, and should not expmt its flaws to other cmmtries.37 

d. EXHAUSTION AND PARALLEL IMPORTATION 

Exhaustion doctrines romote «alienability of goods," enable conswner autonomy, and encourage 

more efficient use of resources. 8 Fwther, they encourage the development of seconda1y markets, which (i) 

increase access to works and technologies by diiving down prices and increasing availability, (ii) support 

preservation, and (iii) enable users to maintain privacy.

39 In addition, robust exhaustion doctrines reduce 

transaction and infonnation costs that users will incur if forced to navigate complex or inconsistent pennissions 

schemes contained in license agreements, and therefore improve market efficiency.40 And exhaustion 

encourages user and marketplace innovation by reducing cost barriers to experimentation and foster competition 

among distribution platfonns by reducing conswner lock-in.

41 Finally, exhaustion enables the repair and resale 

industry to flourish. 42 Cunent U.S. law guarantees both domestic exhaustion43 and international exhaustion 

(also known as parallel impmtation).

44 U.S. trade policy should preserve cmmtries' ability to enact rules that 

place exhaustion limitations on intellectual prope1ty, including preventing undue barriers to impmtation and 

other fonns of trade. 

e. TECHNOLOGICAL PROTECTION l\1.EASURES AND ANTI-CIRCUMVENTION 

Anti-circumvention laws prohibit bypassing digital locks used to control access to content. Where these 

laws can be inte1preted to prohibit circumvention for noninfiinging uses, they fail to take account of the 

interests of the public at large. Expetience under the U.S. anti-circwnvention law has demonstrated both its 

ineffectiveness in stemming copytight infringement45

and its potential for abuse.46 Despite the negative 

18-20; Dept. of Commerce, Intemet Policy Task Force, White Paper on Remixes, Forst Sale, and Stahttory Damages (Jan. 201 6), 5, 

85. 

37 Further, policymakers should be wary of using trade policy to increase criminalization of intellectual property issues. As we 

pointed out in our analysis of the TPP, "[e]fficient enforcement is most likely in situations where a single entity can [weigh the costs 

and benefits] of enforcement. By contrast, with criminal enforcement, the costs are bome by the public, but the benefits may be 

realized only by private parties" leading to inefficient, and costly enforcement regimes. 

38 See generally Margaret Jane Radin, "Property and Personhood," 34 Stan. L. Rev. 957 (1982) (discussing the importance of 

autonomous control over personal property); Stavroula Karapapa, "Reconstructing Copyright Exhaustion in the Online World," I.P.Q. 

2014, 4, 307, 324. 39 See Aaron Perzanowski & Jason Schultz, "Digital Exhaustion," 58 UCLA L. Rev. 889, 894-896 (2011); see also eBay, Inc., 

"Commerce 3.0 for Development: The Promise of the Global Empowerment Network," 25 ("The exhaustion doctrine promotes 

alienability of goods, rewards illllovative sourcing methods, provides a backbone for a robust secondary market, and prevents hannful 

downstream market restrictions.") 

40 See Perzanowski & Schultz at 896-897; see also Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 , 1363 (2013); Molly Shaffer 

Van Houweling, The New Sen>itudes, 96 Goe. L. J. 885, 92 1 (2007). 

41 See Perzanowski & Schultz, 897-900. 42 See Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U. S. 476,497 (1964). 

" 17 USC § 109(a). 44 Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 , 1363 (2013). 

45 See Initial Comments of Mozilla in Section 1201 Sntdy, U.S. Copyright Office FR Doc. 201 6-035 15 at 4 (Mar, 4, 201 6) (stating 

"[m]ass scale infringement of copyrighted works continues today, including with the most valuable and most heavily protected 

examples of such content. Section 1201 and TPMs don 't prevent all infringement: at best, they reduce its impact on market success") 

available at https:!/www.regulations.gov/docmnent?D=COLC-201 5-001 2-0055 46 1n th e years since the passage of Sectio n 1201, it has ca used harm to a stunning array of stakeholders, incl ud ing researchers, 

peopl e with disabilities, stud ents and educato rs, lib raries, innovators and entrepre neurs, creators and remixe rs, and everyday 

technology users and consume rs. See Electron ic Frontie r Foundation, Unintended Consequences: Fiftee n Years Under the 

DMCA (Mar. 20 13), hllgs://www.eff.org/Qages/unintended-conseguences-fifteen-years-under-dmca. In two notable 
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externalities of anti-circmnvention provisions, they have been widely included in international trade 

agreements.47 Given the well-docmnented banns of anti-circumvention laws, U.S. trade policy should avoid 

them. 

f. WELL-CALIBRATED PATENT RIGHTS 

Trade agreement provisions relating patent rights must take into accotmt that patents are not granted 

merely to reward inventors, but rather to benefit the public as a whole by providing tailored incentives for new 

inventions and facilitating access to those inventions. Trade agreements should require parties to carefi.Illy 

balance their patent system between granting monopolies to inventors and ensming public access to and 

competition in ideas and products. U.S. policymakers should be cautious about expanding patent rights, for 

example, by extending the tenn of protection or by providing quasi-patent protection for cettain subject matter, 

where such expansions may lack the balance of existing policies. 

IV. PRESERVING AN OPEN AND ACCESSIBLE INTERNET 

A. UNIVERSAL ACCESS 

Promoting universal, affordable access to broadband setvices also benefits the global digital economy 

because "the more users on the network, the more valuable the network becomes."48 Thus "[e]nsming that 

citizens from evety economic level and in evety part of the cotmtiy can access a high speed connection is an 

essential step in creating a robust digital economy."49 U.S. trade policy shotild therefore seek to promote 

universal access. 

B. NET NEUTRALITY 

The internet's " legacy of openness and transparency . has been critical to the network's success as an 

engine for creativity, itmovation, and economic growth."50 "Closed systems are antithetical to the Internet's 

success and will significantly disable its potential to support trade and innovation going fmward."51 When 

internet setv ice providers throttle, prioritize, or block cettain n·affic on their network, they can distmt 

competition among providers of digital setv ices, content, and applications, thwarting the kind of itmovation that 

has driven the growth and success of the internet. 52 Such conduct jeopardizes the enonnous net smplus value 

examples, a printer manufacturer used Section 1201 to prevent consumers the right to refill their toner cartridges, and a 

garage door opener manufacturer sought to prohibit its customers from using aftermarket clicker transmitters. See Lexmark 

lnt'f, Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004); Chamberlain Group, Inc. v. Sky/ink Techs., Inc., 381 F.3d 

1178 (Fed. Cir. 2004). 

47 Exporting Internet Law at 347. 48 eBay, Commerce 3.0 for Development ("eBay"), 27, https://www.ebaymainstreet.com/sites/default/files/eBay Commerce3-for-Development.pdf. 49 Jd. ; Google Trade Paper at 8 ("[i]mproving the speed and affordability of Internet access could lead to a 4 percent increase in trade 

in manufactured goods."); El5 initiative at 9 ("In tenus of the impact of the Intemet on trade, one study concludes that a 10% increase 

in Internet access leads to a 0.2% increase in exports.)" 50 Presetving the Open Internet et al., GN Docket No. 09-191 , WC Docket No. 07-52, Notice of Proposed Rulemaking, 24 FCC Red 

13064, 13069 (2009) ("Open Internet NPRM"). 

s1 Google Trade Paper at 2. 52 See Barbara van Schewick, "Towards an Economic Framework for Network Neutrality Regulation" ("van Schewick"), 5 J. on 

Telecomm. & High Tech. L. 329,386-390 (2007); Institute for Policy Integrity, Free to Invest: The Economic Benefits of Net 

Ne utrality ("I PI "), 24-32 (2010), hllP...!ilnolicyintegritv.org/documents/Free to lnvest.pdf; S. Derek Turner, Finding the 

6 
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generated by intemet infonnation, applications, and services, which one study estimated at $300 billion in 2009, 

and has only grown since then. 

53 

Further, the intemet's openness is key to its continued success as a platfonn for commerce. Where setv ice 

providers can restrict access to infonnation, products, or setv ices, they increase costs for businesses and 

consmners. In patticular, «[s]mall business entities are the most likely to be discriminated against or blocked 

because they do not have any leverage against Intemet Setvice Providers (ISPs)."54 U.S. trade policy therefore 

should presetve the open internet. Specifically, trade agreements should require countries to endeavor to 

preserve net neutrality and to foster competition in internet setvices. While the TPP requires signatories to 

«recognize the benefit" of net neutrality protections for internet users, 5

5 fi1ture trade agreements should go 

fiuther. In addition, such agreements should clarify that a lack of clear and enforceable net neutrality rules can 

constitute a non-tariff banier to trade. 

C. INTER.i\1:EDIARY LIABILITY PROTECTIONS 

Imposing liability on ISPs for the conduct of third parties using their setv ices can broadly restrict the 

value of the intemet as a platfonn for free expression and innovation. 5

6 Thus, safe harbor provisions that that 

limit the liability ofiSPs for user conduct are often necessaty in many national legal regimes. U.S. trade policy 

should be exceedingly waty of creating or extending intennediruy liability schemes, and should promote robust 

protections against intennediaty liability. In particular, no ISP should be required to actively police or monitor 

the behavior of its users. 

D. A SINGLE, UNIFIED DOMAIN NAME SYSTEM (DNS) Is ESSENTIAL TO THE GLOBAL FLOW OF 

INFORiVIATION ON WmCH DIGITAL TRADE DEPENDS 

A unified DNS is essential to the end-to-end data flows that enable digital trade to flomish globally. A 

user who knows the domain name of the website with which she wants to transact can quickly and reliably 

reach that website whether she is located in Alaska or Abu Dhabi. From its inception, the internet has delivered 

seamless navigation for the world's users through a single addressing system . . While the intemet can continue 

to fimction without individual websites and even without significant network infrastructure, it catmot operate if 

the DNS no longer fimctions. 

Govemments have a legitimate interest in preventing their citizens from engaging in illegal online 

tran actions~ however, increasing levels ofDNS fragmentation are antithetical to the open flow of infonnation 

that has made the internet a truly global engine for cultural and economic development. To secure open, end-toend channels for digital trade, trade agreements should require participating parties to respect the unitary and 

global nature of the DNS and to limit DNS fragmentation caused by domain blocking and filtering. 

E. PROTECTING THE FREE FLOW OF INFORiVIA TION WHILE SAFEGUARDING USER PRIVACY 

Bottom Line: The Truth About Network Ne utrality and Investme nt (2009), ava ilable at 

htto://www.freepress.net/files/Finding the Bottom Line The Truth About NN and Investment O.pdf; van Schewick at 378, 

386; IPI at 26. 

53Jd. 

54 eBay at 21 . 

55 TPP Art. 14.10, see also PK TPP Analysis at 6-8. 

56 Carolina Rossini & Maira Sutton, "The Impact of Trade Agreements on Innovation, Freedom of Expression and Privacy: Internet 

Service Providers' Safe Harbors and Liability," Electronic Frontier Fotmdation, available at 

https://www.eff.org/files/filenodelispliability fnl.pdf; see also Seth F. Kreimer, "Censorship By Proxy: The First Amendment, 

Internet Intermediaries, and the Problem of the Weakest Link," 155 U. Pa. L. Rev. 11 (2006). 
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Without adequate conswner privacy protections, policies encouraging the free flow of infonnation and data 

can put conswners at tisk and undennine trust in internet setv ices.

57 This can have a deleterious effect on trade. 

A recent sh1dy on data collected by the Census Bureau revealed that "[f]mty-five percent of online households 

reported that [privacy and security] concerns stopped them from conducting financial transactions, buying 

goods or setv ices, posting on social networks, or expressing opinions on controversial or political issues via the 

Internet, and 30 percent refrained from at least two of these activities," a figure that amounts to "tnillions of 

households."58 

Likewise, awareness of government stuveillance of online activities can lead consmners to avoid engaging 

online. 5

9 In the same sh1dy, "29 percent of households concerned about government data collection said they did 

not express controversial or political opinions online due to privacy or secmity concerns[. ]"

60 Another study 

directly assessed the impact of awareness of government smveillance on the willingness of people to conb·ibute 

and share content on social media, finding that when users' were reminded that their activities may be subject to 

smveillance, they refrained from expressing perceived tninority opinions.61 This effect "severely tmdennines 

the Internet's ability to setve as a neutral platfonn for infonnation sharing and discussion," 62 and likely impacts 

internet finns' profitability. 63 

With the TPP, the USTR has affinned that the TPP cmmnits "to ensuring the free flow of the global 

infonnation and data that drive the internet and digital economy, subject to legitimate public policy objectives 

such as personal infonnation protection. " This is an important step towards recognizing the need for legitimate 

privacy protections for conswners, however it may not go far enough. 64 U.S. trade policy should therefore seek 

to promote the adoption of adequate privacy protections along with provisions that encourage the free flow of 

infonnation. In addition, U.S. trade policy should avoid promoting tmnecessa1y requirements for domain name 

registrars that hann user ptivacy by prohibiting the use of privacy or proxy seiVices.

65 

V. SPECTRUM MANAGEMENT 

57 Alberto Cerda & Ca rolina Rossini, "Information Flow and Trade Agreements: History and Implications for Consumers' 

Privacy", Consumers International, 3 (May 2013), http://aZknetwork.org/sites/default/files/tpp and free flow.pdf. 58 Rafi Goldberg, Lack of Trust in Internet Privacy and Security May Deter Economic and Other Online Activities, NTIA (May 13, 

20 16), https://www.ntia.doc.gov /blog/20 16/lack-trust-internet-privacy-and-security-may-deter-economic-and-other-online· 

activities. 59 See id., listing "data collection or tracking by government" as a "common concern" of people surveyed in the study. 

60 1d. 

61 Elizabeth Stoycheff, Surevillance Chills Online Speech Even When People Have "Nothing to Hide", Slate Future Tense 

("Nothing to Hide") (May 3, 2016, 1:59 PM), 

h.lli!J.Lwww.slate.com/blog,Ufuture tenseL2016~LQJLmass surveillance chills online speech even when people have not 

hing to.html; Elizabeth Stoycheff, Under Surve illance: Examining Facebook's Spiral of Silence Effects in the Wake of NSA 

Internet Monitoring, 93 Journalism & Mass Communication Quarterly 296 Oune 2016). 

62 Nothing to Hide. 63 "[C)onsumer and business res ponses to gove rnment use of the Internet for national security purposes can have implications 

for digital trade. The Snowden leaks are estimated to cost the US cloud computing firms up to $35 billion in lost revenue." 

Joshua P. Meltzer, Maximizing the Opportunities of the In ternet for International Trade. E15 Policy Options Paper Oanuary 

2016), http://e1Sinitiative.org/publications/maximizing-opportunities-internet-international-trade/. 64 See Burcu Kili c & Tamir Israel, "The Highlights of the Trans-Pacific Partne rship E-Commerce Chapter," Public Citize n (Nov. 5, 

20 15), https://www.citizen.org/documents/tpp-ecommerce-chapter-analysis.pdf. 

65 For argmnents supporting broad availability of privacy and proxy setv ices, see Comments of Center for Democracy and 

Technology, New America 's Open Technology Institute, and Public Knowledge to ICANN on the GNSO's Initial Privacy & Proxy 

Setvices Accreditation Issues Working Group, https://www.publicknowledge.org/docmnents/comments-to-icann-on-the-gnsos-initialprivacy-proxy-setvices-accreditation. 

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