Trade Policy Staff Committee Office of the United States ...

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1101 K Street, NW Suite 610Washington, D.C. 20005(202) 737 - 8888 | www.itic.org

June12,2017EdwardGresser,ChairmanTradePolicyStaffCommitteeOfficeoftheUnitedStatesTradeRepresentative60017thStNWWashington,DC20006Submittedelectronicallyviawww.regulations.gov

RE:RequestforCommentsonNegotiatingObjectivesRegardingModernizationoftheNorthAmericanFreeTradeAgreementWithCanadaandMexico(82F.R.98,pp23699-23700;DocketID:No.USTR-2017-0006)

DearChairmanGresser,AmodernizedNorthAmericanFreeTradeAgreement(NAFTA)thatreflectsthelast25yearsoftechnologicalprogressandinnovationwillbenefittheAmericaneconomythroughopenmarkets,increasedexports,morejobs,higherwages,andgreaterinnovation.ITI’smembercompaniesdriveU.S.competitiveness,growthandjobcreationinvirtuallyeverysectoroftheeconomy,supportingourmanufacturers,automakers,energyfirms,constructionfirms,financialfirms,healthcareproviders,farmers,ranchers,andsmallbusinesses.In2016,U.S.companiesexportedmorethan$200billionoftechnologygoods,including$43billiontoMexicoand$24billiontoCanada(ourtwolargestexportmarkets).In2015,U.S.firmsexportedalmost$400billionofservicespotentiallyprovidedoverinformationandcommunicationstechnologynetworks.WelookforwardtoworkingwiththeAdministrationtoopenmarkets,createjobs,growoureconomy,andrealizethemanyothereconomicbenefitsof“digitaltrade.”InworkingtomodernizetheNAFTA,weencouragetheAdministrationtosupportU.S.companiesandworkersby:• PromotingafreeandopenInternet;• Ensuringthatdatacanmovefreelyacrossborders;• Prohibitingrequirementsoncompaniestolocalizedataorproduction,ortoturnover

technology,sourcecode,algorithms,orencryptionkeys;• Seekingindustry-led,globally“interoperable”approachestoprivacyandcybersecurity;• Ensuringthatregulationofonlineservicesandapplicationstargetsgenuineregulatory

objectives,andthatgovernmentsdonotmakeInternetintermediaries,platforms,andcloudprovidersliableforactivitybythirdpartiesthattheydonotcontrol;

• Eliminatingrestrictions,tariffs,taxes,andfeesonalltechnologyproductsandcommittingMexicotojointheWTOinformationTechnologyAgreement(ITA);

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• Eliminatingburdensomecustomsregulationsthattechnologyproductsfaceattheborder;• Prohibitingdiscriminationagainst“newservices”–i.e.,servicesnotyetconceived;• Ensuringtheuseofindustry-ledinternationalstandardsintechnicalregulations;and• Promotingbalancedcopyrightrulesandstrongprotectionsforpatentsandtradesecrets.

OursubmissionbelowelaboratesontheabovepointsandotherimportantissuesinresponsetoUSTR’srequestforcomments.WelookforwardtoengagingwithAmbassadorLighthizerandtheUSTRstaffthroughouttheNAFTAmodernizationprocess.Thankyoufortakingourcommentsintoaccount.Bestregards,

DeanGarfieldPresidentandCEOInformationTechnologyIndustryCouncil

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InformationTechnologyIndustryCouncil(ITI)PublicCommentsontheNAFTAModernization

June12,2017IntroductionITIistheglobalvoiceofthetechsector.Weadvocateforpublicpoliciesthatadvanceinnovation,openmarkets,andenablethetransformationaleconomic,societal,andcommercialopportunitiesthatourcompaniesarecreating.Ourmembersrepresenttheentirespectrumoftechnology:fromInternetcompanies,tohardwareandnetworkingequipmentmanufacturers,tosoftwaredevelopers.ITI’sdiversemembershipandexpertstaffprovideabroadperspectiveandintelligentinsightinconfrontingtheimplicationsandopportunitiesofpolicyactivitiesaroundtheworld.Afulllistofourmembersisattachedtothissubmission.GeneralNegotiatingObjectivesITIappreciatestheopportunitytoprovidecommentsonthisimportantundertaking,andwewelcometheopportunitytosupporteffortstogrowtheU.S.economythroughamodernizedNorthAmericanFreeTradeAgreement(NAFTA).ITIwasanactiveparticipantinconsultationsthatresultedinthe2015TradeBipartisanCongressionalTradePrioritiesandAccountabilityActof2015(TPA).ThislawincludesnegotiatingobjectivesspecifictodigitaltradethatwebelieveshouldguidetheAdministrationduringNAFTAmodernizationnegotiations.WesharetheAdministration’sgoalsofopeningmarketsandincreasingU.S.manufacturing,agriculturalandservicesexports;creatingjobsandraisingwagesintheUnitedStates;andimprovingtheU.S.climateforinvestmentandinnovation.WeencourageallthreepartiestopreserveandmodernizetheNAFTAsothatitcontinuestoserveasaplatformforleveragingtechnologytoincreaseU.S.economicgrowthandjobcreation.ModernizationoftheNAFTAisauniqueopportunitytoachievethehighestpossiblestandardsinimportanttradepolicyareas,suchasdigitaltrade,whichwillbenefitAmericanworkersandcompanies,spurinnovation,anddrivegrowth.TheUnitedStates’economyisfundamentallylinkedwiththoseofCanadaandMexico.$1millioningoodscrossestheU.S.-Mexicobordereveryminute,and$1.5millionperminutemovesbackandforthwithCanada.NAFTAisanintegralpartofU.S.economicsuccessbecauseofthelongstandingtrilateraltraderelationshipandthenumberofindustries,companies,andpeoplethatdependsoheavilyonthetraderelationshipthattheUnitedStateshaswithCanadaandMexico.Itis,therefore,intheinterestoftheU.S.economythattheNAFTAprovisionsthathaveledtothissuccessbepreservedandstrengthenedandthatneworupdatedprovisionsnot

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onlydonotdisadvantagetheabilityofU.S.companiestodobusinessathomeandwithinNAFTAcountries,butenableandaccelerateU.S.economicsuccess.Allthreepartieshaveshowntheycanagreeon21stcenturyprovisionsthroughtheparticipationintheTrans-PacificPartnership(TPP)Agreementnegotiations.WeagreewiththeAdministrationthatelementsoftheTPPAgreementcanserveasbuildingblocksforanexpeditiousNAFTAmodernizationandnotetherecentcommentsinthatregardbyseniorUSTR1andCommerce2officials.WewelcomeindicationsfromtheAdministrationthatitwillbuildonthesepositiveaspectsoftheTPP,inaccordancewiththeTPAobjectives,intheNAFTAmodernizationnegotiations.EconomicCostsandBenefitstoU.S.ProducersofTariffandNon-TariffBarrierReductionTheproductionoftechnologygoodsandservices(likemostmoderngoodsandservices)istheresultofcomplex,globalsupplychainsthatcompaniesdevelopinmultiplelocationsaroundtheworldtotapinnovation,maximizecostefficiencies,andrespondtosupplyanddemand.Intheprocessofcreatingafinishedproduct,componentsofthatproductarepotentiallyimportedandexportedmultipletimesacrossmultiplecountriesbeforeafinalproductiscreated–70%ofglobaltradeistradeinintermediategoodsandservicesandincapitalgoods.Theintertwiningofhardware,software,andservicesthatourcompaniesenablesupportsU.S.effortstointegrateintothese“globalvaluechains.”Technologycompaniesemployover6.9millionAmericans–5%ofprivatesectoremployment–andaccountfor7.5%ofU.S.GDP.Technologyproductsandservicesdrivegrowthandjobcreationinvirtuallyeverysectoroftheeconomy,supportingourmanufacturers,automakers,energyfirms,constructionfirms,financialfirms,healthcareproviders,farmersandranchersandotherU.S.industriestobemorecompetitive,athomeandabroad.U.S.competitiveness,jobsinallsectors,andbusinessesofallsizesandtypesnowdependoncompaniesbeingabletomovedigitalinformationrapidlyandfreely,includingacrossborders,tosupporttheirbusinessesandreachcustomersinforeignmarkets.ThetechnologysectoralsomakessignificantcontributionsintheUnitedStatestoinnovation,educationprograms,skillsandknowledgedevelopment,andproductsthatimprovethelivesofcitizensatallsocialandeconomiclevels.ITImembersareleadersintheprovisionoftechnologyskillstrainingtoAmericanyouth,membersoftraditionallydisadvantagedgroups,ruralAmericans,andadultstransitioningfromothercareers,includingveterans.Inaddition,thetechnologysectorplaysakeyroleinUnitedStates’foreigntradeandinsupplychainsacrossNorthAmericaandbeyond.In2016,totalU.S.exportsoftechnologygoods

1https://insidetrade.com/daily-news/lighthizer-says-renegotiated-nafta-could-go-beyond-tpp-provisions2https://www.bloomberg.com/news/articles/2017-05-03/ross-says-tpp-could-form-starting-point-for-u-s-on-nafta-talks

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exceeded$202.1billion.MexicoandCanadawerethetwobiggestimportersofthosegoodswith$42.8billionand$24.2billioninimports,respectively,andU.S.techexportstoMexicohaveincreasednearly70%since2006.TheU.S.isamajorsupplierofsemiconductorsacrossNorthAmerica,whileMexicoandCanadaareleadingproducersofotherimportantinputs,suchascomputerandaudio-visualequipment,formanufacturinghereintheUnitedStates.TheUnitedStatesisalsoaworldleaderinservicestrade,and3U.S.servicesareimportantcomponentsofsupplychainsacrosseveryindustry.In2015,U.S.exportsofpotentiallyICT-enabledservices(servicesthatareprovidedoverICTnetworks)were$398.7billion,including$27.1billiontoCanadaand$8.7billiontoMexico.TheUnitedStatesranasurplusofover$161.5billioninpotentiallyICT-enabledservicestradein20154.WerecentlysubmittedpubliccommentstoinformtheDepartmentofCommerce’sreportontradedeficitsandemphasizedtheimportanceofaddressingbarrierstotrade.Tothatend,amodernizedNAFTAshouldbothaddressexistingbarrierstotradeinCanadaandMexico,butalsoincludebinding,enforceablerulesthatpreventgovernmentsfromimposingnewbarrierstotrade,whichcouldhavepositiveimpactsonourtradebalanceswithbothcountries.Abarrier-freeNorthAmericantradingenvironmentthatisrules-based,open,transparent,andbuiltforaneconomythatisincreasinglydigitalplaystothestrengthsandexportcompetitivenessofU.S.companiesinallsectors.WemakeourrecommendationsbelowwithincreasingU.S.exportsandtradeoverallinNorthAmericainmind.ITIurgesallthreegovernmentstoseekacomprehensive,21stcenturyoutcomes,particularlyregardingdigitaltrade,thatwillmodernizetheagreementcommensuratewiththetechnologicalprogressandinnovationofthemorethan20yearssinceNAFTA’sentryintoforce.Suchoutcomeswillpositionthethreeeconomiestocontinuetobenefitfromintegration,cementtheirfundamentallyimportantandintertwinedpoliticalandeconomicrelationships,andincreaseexportopportunitiesforU.S.companiesinallsectorsandofallsizes.Weareencouragedbytheapparentreadinessofindustriesinallthreecountriestoembraceprovisionsthatwouldsupportthisoutcome.

3TheBureauofEconomicAnalysis(BEA)definesICTservicesastelecommunicationsservices,computersservice,andchargesfortheuseofintellectualpropertyassociatedwithcomputersoftware.“PotentiallyICT-enabledservices”includetheseICTservicesaswellasotherservicesthatareoftendeliveredremotelyoverICTnetworks,suchasinsurance,financialservices,andselectedotherservices.Fordetails,seeGrimm,TrendsinU.S.TradeinInformationandCommunicationsTechnology(ICT)ServicesandinICT-EnabledServices,May2016.https://www.bea.gov/scb/pdf/2016/05%20May/0516_trends_%20in_us_trade_in_ict_serivces2.pdf.4https://www.bea.gov/scb/pdf/2016/12%20December/1216_international_services.pdf

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DigitalTradeAsthe2015TPAlegislationhighlighted,digitaltrade,whichistradewheretheInternetandInternet-basedtechnologiesplayaparticularlysignificantroleinordering,producing,ordeliveringproductsandservices5,isfundamentaltotheU.S.economy.Allcompaniesnowrelyondigitaltechnologiesandthedataflowstoreachmarketsoverseasandruntheirglobalbusinessoperations.Asaresult,akeycomponentofpromotingeconomicgrowthandjobcreationtodayistoaddressbarriersandfacilitatedigitaltrade.OurunderstandingisthatbothMexicoandCanadaandtheirrespectiveindustriesshareourdesiretouseNAFTAtogrowandfacilitatedigitaltrade.Accordingly,ITIrecommendsnegotiatingadigitaltradechapterinamodernizedNAFTAthatbuildsontheTPPe-commercechapterandincludesprovisionsthat:

• PromoteafreeandopenInternetinordertosupportthedigitalneedsofU.S.manufacturersandserviceprovidersandenablinginnovativenewU.S.businesses;

• Requirepartiestoallowdatatomovefreelyacrossborders,enablingU.S.firmsinallsectorstotransferandaccessdataasitbestmakessensefortheirbusinesses;

• Prohibittariffsortaxes,andotherdiscriminatorybarriersoncross-borderdataflowsanddigitalproducts,providingmarketaccessforU.S.productsandservicessoldelectronically;

• Prohibitrequirementstolocalizedata,production,orphysicalinfrastructure,allowingUScompaniestomakedecisionsaboutinvestmentbasedonwhatismostefficientfortheircompanies;

• Prohibitrequirementsthatcompaniestransfertechnology,sourcecode,algorithms,orencryptionkeys;

• Requirethepartiestoadoptormaintainlegalframeworksthatpromoteprotectionsforconsumersandpersonalinformation,andtoimplementmechanismstoensurecompatibilityoftheseframeworks,including,butnotlimitedto,theAsia-PacificEconomicCooperation(APEC)forum’sCrossBorderPrivacyRules(CBPRs)system;

• Requirethepartiestocooperateontrade-relatedcybersecurityissues,includingtoensurethatmeasurestheytaketoenhancecybersecurityrelyonriskmanagement-basedapproachesthatavoidprescribedstandardsforindividualtechnologiesandincorporatemeaningfulconsultationwiththeprivatesectortoencourageinnovative,flexible,andcost-effectivesolutions;

• Prohibittheextensionoftelecommunicationsandbroadcastingregulatoryandlicensingrequirementstoonlineservicesandapplicationsandensuringthatanyregulationofonlineservicesandapplicationsisnomoretraderestrictivethannecessarytoachievealegitimateregulatoryobjective;and

5https://www.usitc.gov/publications/332/pub4485.pdf

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• Ensuretheadoptionof“intermediaryliability”protections,sothatgovernmentscannotmakeinnovativeU.S.onlineservicesliableforactivitybythirdpartiesthattheydonotcontrol.

ExpectedImpact:AcoreobjectiveforamodernizedNAFTAshouldbetoensurethatasmanypeopleandcompaniesaspossiblecanparticipateinandbenefitfromtradeinNorthAmerica.Tothatend,theaboverecommendationsondigitaltradewouldgiveindividualsandSMEsmoreopportunitiestotradetheirproductsandservicesandgrowtheirbusinessesviatheInternet.WeanticipatethedigitaltradeprovisionsofamodernizedNAFTAwillmakeitpossibleformorecompaniesofallsizestoparticipateinNorthAmericantrade;createvirtuouscyclesandnetworkeffectsofeconomicactivity,innovation,andjobcreation;andthereforeincreaseU.S.exportsandimproveU.S.tradebalanceswithCanadaandMexico.Inaddition,alloftherecommendationsabovewouldpromotetheflowofdatabetweenCanada,MexicoandtheUnitedStates–andthatflowofdataiscriticaltofuturecompetitivenessofU.S.technologyandtechnology-enabledcompanies.MarketAccessandNationalTreatmentDuty-free,barrier-freetradeintechnologyproductsisvitalformanufacturers,farmers,ranchers,servicesproviders,andsmallbusinessesalike.TechnologyinputsmakeU.S.companiesacrosseveryindustrymorecompetitiveintheUnitedStatesandglobally.AndU.S.manufacturersandagriculturalfirmscanproduceandexportmoregoodswhenboththeyandtheU.S.servicesprovidersuponwhichtheyrelycantransferdataseamlesslyacrossborders.Thisistrueforlargeandsmallenterprises,includingthemanymicro-enterprisesthatnowparticipateinglobalvaluechainsandaccessglobalmarketsviaglobale-commerceandotherInternet-basedplatforms.Accesstolowercost,state-of-the-arttechnologyhardwareisnecessaryforanycompanyofanysizeinanysectortocompeteintoday’sglobaleconomy.Therefore,werecommendthatthemarketaccesschapterofamodernizedNAFTAincludeprovisionsthat:

• MaintainorexpandontheNAFTA’seliminationoftariffs,bordertaxesandfees,orotherchargestotechnologyproductsandinputsinorderforU.S.companiesthroughoutthevaluechaintocontinuetobenefitfromthetradeagreement;

• RequirethepartiestojointheWTOInformationTechnologyAgreement(ITA),itsrecentexpansion,andanyfutureexpansionoftheagreement.Currently,MexicoisneitherasignatorytotheITAnorITAexpansion.UndertheTPPAgreement,MexicodidnotfullycommittojoiningtheITA,andtheITAexpansionnegotiationsconcludedaftertheTPPnegotiationsconcluded.AmodernizedNAFTAwouldbethebestopportunitytobringMexicofullyonboardasanITAparticipant;

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o MexicanparticipationinITAandITAexpansionwouldenableU.S.companiestoexportmoreproductsintoMexicoatlowercost,astheywouldthennothavetogeneratecertificatesoforigintoobtaintheNAFTApreferentialrateofduty.

• Clarifythattheprovisionsofthemarketaccesschapterfullyapplytoimportsandexportsofremanufacturedgoodsandusedtechnologyhardware.TherewasconsensusintheTPPonthisissue,whichtheTPPmarketaccesschapterreflected.WewouldstronglyadvocateincludingtheTPPclarificationonremanufacturedgoodsandusedequipmentinthemarketaccesschapterofamodernizedNAFTA;

• MaintaintheexistingNAFTArulesoforigin.ITIadvocatesformaintainingtheintegratedproductionplatformsinNorthAmericathathavestrengthenedthecompetitivenessofU.S.companiesinglobalmarkets.TherulesoforiginwithinNAFTAarealreadythemoststringentofanyfreetradeagreement.ITIsupportschangestosimplifytheprocessesforallpartiesforconfirmingorigin;however,industrysupplychainsdependonthecurrentNAFTArulesoforigin,andanychangeswouldpotentiallydisruptexistingproductionandhurttheU.S.economy.Further,ITIurgestheAdministrationtoavoidcountry-specificcontentrequirementsintheNAFTAgovernmentprocurementchapter;and

• Prohibittariffs,bordertaxes,orfeesondigitalproducts,ensuringmarketaccessforU.S.companiesprovidinggoodsandservicessoldordeliveredelectronically.

ExpectedImpact:ThefurthereliminationoftariffsinCanadaandMexicoontechnologyproductswouldhelpincreaseU.S.exportstobothmarketsandimprovetheU.Stradebalancewithbothcountries.ThecertaintythatthenationaltreatmentprovisionsapplytoremanufacturedgoodsandusedequipmentwouldbolsterU.S.remanufacturing,whichwouldenablemoreU.S.exportsofremanufacturedequipmenttoCanadaandMexico.Thisindustryishighlylabor-intensiveaccordingtotheU.S.InternationalTradeCommission6andwouldlikelycreatemorejobswiththiscertainty.

CustomsandTradeFacilitationIssuesITIstronglyadvocatesthatamodernizedNAFTAeliminateburdensomecustomsregulationsandotherredtapethattechnologyproductsfaceattheborderinordertolowerthetime,cost,anduncertaintyofmovinggoodsthroughandacrossallthreeNAFTAmarkets.Inthisregard,werecommendthatthecustomsandtradefacilitationchapterinamodernizedNAFTAusetheTPPCustomsandTradeFacilitationChapterasabuildingblockandincludeprovisionsthat:

• ReflectorbuildontheWTOTradeFacilitationAgreement(TFA)CategoryAprovisions,suchasthoseconcerningsimplifyingandexpeditingcustomsclearanceforallthree

6https://www.usitc.gov/publications/332/pub4356.pdf

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markets,includingforlowvalueshipments;aligningcustomsregulationsandproceduresacrossallthreemarkets;andexpandingparticipationinandaccesstotrustedtraderprograms;

• CommitCanadaandMexicotoraisetheirdeminimislevelsforduty-freeentryoflowvalueshipmentstoatleast$800,inordertomatchorexceedthelevelsetinU.S.law.7Weviewthisissueassignificantopportunitytoincreasee-commercetradeintoCanadaandMexico;

o Forexample,Canada’sdeminimisthresholdremainsatCAD20(approximatelyUSD$15),thelowestofanyindustrializedcountryandamongthelowestintheentireworld.

o Thislowthreshold,whichhasnotbeenadjustedsincethe1980s,createsanunnecessarybarriertotradethroughincreasedtransactioncostsforCanadianbusinesses,andrestrictsconsumerchoiceandcompetition.

• Streamlineandsimplifycustomsproceduresforcross-bordershipments;ando Mexico’sCustomsAgencyseekstomodifythesimplifiedimportsmodelvia

couriers(amendmentstothecurrentForeignTradeRule3.7.3.andproposednewRule3.7.35)byincreasingthevalue-addedtaxanddutyforexpressshipments,inadditiontoseveralnewrequirements,suchasreportingtheHScodeofeveryproductcontainedinanexpressshipmentandmonthlyreportslistingtaxIDsforcustomersandshipmentinvoices.ThisbuildsonanApril2015changetotheCustomsLawRulesthatwouldrequiredocumentedsupportofthevaluationofanyimportedmerchandise.Aswritten,thearticlemakesimportscumbersomeandsometimesimpossible,asitasksfordocumentsthatarenon-existent,confidential,orissuedaftertheimport.Importersandcustomsexpeditorscontinuetoexpressconcernwiththisrequirement,notonlybecauseoftheburdenitimposesoncompanies,butalsobecauseofitspotentialtobecomeabarriertotrade.

• Ensurethatexistinginfrastructureandprotocolsexisttofacilitatecommunicationsbetweenregulatoryauthoritiesandcustomsauthorities.

o Relianceonasingle-windowbasedprogramwouldhelpreduceconfusionandborderdelaysrelatedtoregulatoryproductscope,whichisoftennotfullyalignedwithtariffcodes.

o TheTPPAgreementincludedacommitmenttoendeavortoprovideasinglewindowforcompletingimportandexportprocedures(seeTPPAgreementArticle5.6.2).

o GiventheclosecooperationoftheUnitedStates,Canada,andMexicooncustomsandtradefacilitationissues,wewouldadvocatethatamodernizedNAFTAgofurtherthanthesinglewindowcommitmentsinboththeTFAandtheTPP.

7https://www.cbp.gov/newsroom/national-media-release/de-minimis-value-increases-800

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ExpectedImpact:StreamlinedandefficientcustomsandtradefacilitationmeasuresinNorthAmericanwouldproducesubstantialincreasesinU.S.exportstobothCanadaandMexico,particularlyifCanadaandMexicoweretoincreasetheirdeminimislevelsto$800.ThehighlyintegratedNorthAmericanmarketreliesonefficientsupplychains,logistics,andbordercrossings.Highcostsofbordercrossingscanincreasethecostoffinalgoodsby15%,andeveryadditionaldayatthebordercanreducetradeby1%.ForU.S.exportstoCanadaandMexicotogrow,amodernizedNAFTAmustreducethetime,cost,anduncertaintyofimportingandexportinggoodsinNorthAmerica.

TechnicalBarrierstoTradeWeadvocatethatamodernizedNAFTAbuildontheTBTChapteroftheTPPAgreementandincludetheInformationandCommunicationsTechnology(ICT)Annex.Inthisregard,werecommendthattheTBTChapterinamodernizedNAFTAincludeprovisionsthat:

• Recognizethebenefitsofrelianceonvoluntary,industry-ledinternationalstandards;• Recognizethatinternationalstandardsaredevelopedbyadiversesetofstandards

settingbodies,includingindustry-ledforaandconsortia,thatengageinstandardizationactivitywidelyrecognizedandadoptedbythemarketplaceacrossnationalandregionalborders;

o Recognitionofstandardizationactivityshoulddependonthosewhoestablishandusestandards,thatismarketparticipants,andnotgovernmentsormultilateralorganizations.IfthebodiesproducingsuchstandardsadoptproceduresconsistentwithWTOTechnicalBarrierstoTrade(TBT)CommitteeDecisionincluding,amongotherthings,transparency,openness,impartialityandconsensus,theyarebydefinition“recognizedbodies,”asthattermisusedinannexB,paragraph2,oftheWTOTBTAgreement,andthedocumentstheyproducearebydefinitioninternationalstandards.

• Requirethepartiestoconsideralignmentwitheachother’sregulationsthatarebasedonglobalbestpracticesornorms,priortoamendingexistingrequirementsorpromulgatingnewrequirements;

• Requirethepartiestouseexistinginternationalstandardsasthebasisfortheirtechnicalregulations,wheninternationalstandardsexistandareappropriatetomeetregulatoryobjectives;

• Requirethepartiestosupportexistinginternationalagreementsconcerningregulatoryorconformityassessmentissues;

• Recognizeinternationalcertificationandtestreports,whenapplicable,andavoidanceofin-countrytestingandcertificationrequirements;

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o ThisincludesextendingMexico’sagreementontheequivalenceofsafetystandardsfromMexico,theUnitedStates,andCanada,andtoacceptproductsafetycertificatesbasedontheNorthAmericanproductsafetystandardforITequipment,makingreferencetothelatestMexicanSafetyStandards(someofthemstillunderreview).

o Currently,thereisanagreementinplacebywhichMexicoagreestoacceptproductstestedintheU.S.tomeetaNorthAmericansafetystandard.Thelatestdraftofthesesafetyregulations(NOM019)doesnotprovidereferencetothisagreement.USmanufacturerswouldliketoensurethattheydonothavetoretestandrecertifytheirproductstomeetauniquesetofproductsafetyrequirementsinMexico.NAFTA2.0shouldensureasmoothtransitiontoalignedNorthAmericanstandardsandmutualacceptanceoftestingandcertificationforproductsafetyandothertechnicalareas.

o Inaddition,thepartiesshouldfullyimplementtheexistingU.S.–MexicoTelecomMutualRecognitionAgreement(MRA).TheMRAshouldbeupdatedtoreferencethelatestMexicantelecomstandardsissuedsince2015.BothpartiesshouldstronglyencouragelaboratoriesfrombothcountriestoparticipateintheMRA.

• Requirepartiestoaccepttheleasttraderestrictiveconformityassessmentprocess,basedonariskproportionateapproachtoregulation;

o Forexample,MexicomustaddressrulesincludingitsLawofStandardsandMetrology,tosupportstreamlinedconformityassessmentmodelsincludingSupplier’sDeclarationofConformity(SDoC).IntheICTAnnextotheTBTChapteroftheTPPAgreement,MexicoreceivedanexceptionfromadheringtoageneralcommitmenttoacceptSDoCforEMCbecauseofthislaw.

o Mexicoisregulatingtheenergyefficiencyofproductsthroughavarietyofoftenduplicativeandconflictingregulations,includingthesecondaryregulationoftheLawonSustainableEnergyandthenewLawonEnergyTransition,andofficialstandardsforspecificproducts(suchasNOM-032forprintersanddraftNOM029forexternalpowersupplies),aswellascountry-specifictestsandlabelsthatimposeadditionalcostsandburdensonmanufacturers.

o Divergingspecificationsandtheresultingfragmentationofrequirementsplacealargeburdenonthetechsector’sabilitytocommercializeelectronicproducts.Concernsincludeuniqueandexcessivetestrequirementsaswellaslackofmutualrecognitionagreementsforlaboratorytestresults.

o AseparateMexicanMetrologylawrequiresannualre-testing,whichisnotdoneanywhereelseintheworld.Globally,industrytestsandregistersproductsonce;onlyre-testingwhenaproductismodified.Thisisunnecessarilyburdensomeformanufacturersandshouldbeaddressedatthefederallevelviaadoptionofregionallyandgloballyalignedrequirements.

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• Requireacceptanceofelectroniclabeling(e-labeling),bywhichtechnologyproductscanelectronicallyprovidecompliancemarkingsandstatementsattestingtotheircompliancetostandards,technicalspecifications,codesandregulationsand;

o Thismightbethroughaproduct’son-screendisplayorbyotherelectronicmethodssuchasapplicationofaQRcodethatprovidesalinktothemostup-to-datelabelinginformation.

• Reaffirmthatstandardsorganizationsthataresettingtechnicalregulations/nationalstandardsshouldhavepoliciesandpracticesthatadheretotheCodeofConductestablishedintheWTOTBTAgreement,Annex3.

ExpectedImpact:ATBTChapterthatincludestheaboveprovisionswouldpromotefurtherregulatoryalignmentinNorthAmerica,reducemarketsegmentation,andcreategreateropportunitiestoexportU.S.technologyproductstoCanadaandMexico,whichwouldbenefitU.S.tradebalanceswithbothcountries.ItwouldalsopromotewideracceptanceofinternationalstandardsthatarebasedonU.S.voluntaryindustrystandards.TradeinServicesTheNAFTAenteredintoforcein1994,justastheUnitedStates,MexicoandCanadawerecompletingthefirstevermultilateraltradenegotiationsonservicesintheUruguayRound.ItembracedtherulesthatwereachievedintheRound,butNAFTAservicesaredoneanegativelistbasis,sothecoverageismorecomprehensivethanthemarketaccessobtainedintheGATS.ServicesnowdriveU.S.exports,andamodernizedNAFTAshouldrecognizeandfacilitatethatreality.In2016,U.S.servicesexportstoMexicowere$31.1billion,witha$7.6billionU.S.exportsurplus,and$29.6billiontoCanada,witha$25billionU.S.exportsurplus.ServicesexportstoMexicoandCanadasinceNAFTAenteredintoforce23yearsagohavegrownby216%and225%,respectively.ITIadvocatesthatamodernizedNAFTAbuildonthisstrongfoundationby1)usingtheTPPAgreementserviceschapterasabuildingblock;2)updatingthenegativelistsofnon-conformingmeasuresforallthreepartiestoreflecttheservicesmarketaccessthatwasnegotiatedintheTPPAgreement;and3)eliminatinganyremainingnon-conformingmeasurestothemaximumextentpossible.Inaddition,NAFTAcontainsaverybroadculturalcarve-outforCanadathatenablesittorestrictimposetheprovisionofU.S.audiovisual,entertainment,andothersimilarcontentinCanada.ITIrecommendthattheserviceschapterinamodernizedNAFTAincludeprovisionsthat:

• Preventthepartiesfromdiscriminatingagainstnewservices–inotherwords,servicesyettobeconceived;

• Prohibitthepartiestorequirecompaniestoestablishalocalpresenceasaconditionformarketaccess;

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• Reduceburdensomelicensingandregistrationrequirementsandrecognizinglicensingandregistrationregimesintheotherparties;

• Prohibitbarriersoncross-borderpaymentsandfinancialtransactions;• Ensurefullmarketaccessacrossallthreepartiesforcomputerandcomputer-related

services;and• Ensurethatcompaniescandistributeaudiovisualandmediacontentdigitally,without

government-mandatedlocalcontentrequirements,nationaltreatmentrestrictions,andmarketaccessrestrictions.

ExpectedImpact:AmodernizedNAFTAthatreflectstheaboveperspectivesandthoseondigitaltradewouldenhanceU.S.servicesexportcompetitivenessandincreaseexportsofbothICTservicesandICT-enabledservices.WeanticipatethattheUnitedStateswouldexportevenmoreservicestoCanadaandMexico,therebyimprovingtheU.S.tradebalanceswithbothcountries.IntellectualPropertyRights(IPR)StrongandbalancedenforcementandprotectionofIPRiscriticaltotheU.S.economyandcompaniesexcellingininnovation,research,anddevelopment.Mexicocurrentlylackssomeimportantelementsofitscopyrightsystem–includingnoliability‘safeharbors’foronlineserviceprovidersandanarrow,fixedsetofcopyrightexceptionsinadequateforaneconomythatisincreasinglydigital.WerecommendthattheIPRchapterofamodernizedNAFTAincorporatemanyelementsoftheTPPAgreement’sIPRchapter,includingprovisionsthat:

• PromotebalancedcopyrightrulesthatincludebothcopyrightprotectionsandlimitationsandexceptionsthatunderpindigitaltechnologiesandongoingU.S.innovation;

• Requirepartiestoadoptstrongcopyrightsafeharborsfromliabilityforonlineserviceproviders,wheretheyhavesystemsinplacetoaddressonlineinfringement;

• Establishcivilremediesandcriminalpenaltiesfortradesecrettheftandensuringnon-discriminatorypatenteligibilityforinnovationsacrossareasoftechnology;and

• Prohibitpartiesfromrequiringtheregistrationoflicensingagreements,grantingofcompulsorylicenses,andinvalidatingpatentsforlackofexploitationofpatentedinventions,assuchantiquatedprovisionsfailtorecognizethecommercialrealitiesoftheglobalmarketplaceandhaveachillingeffectoncommerce.

ExpectedImpact:U.S.technologycompaniesandcompaniesthatrelyondigitaltechnologiesaresignificantbeneficiariesofstrongandbalancedprotectionandenforcementofintellectualpropertyrights.AmodernizedNAFTAthatreflectstheaboverecommendationswouldstrengthenU.S.competitivenessandexportperformance.Anoverlystrictcopyrightregimeof

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thatdoesnotincludelimitationsandexceptions,suchaspermitting‘fairuse’ofcopyrightedmaterial,wouldimpairtheU.S.economyandU.S.innovationleadership.IntheUnitedStates,industriesthatbenefitfromfairuseandotherprovisionsgenerate$4.5trillioninannualrevenueandemploy1in8U.S.workers.However,foreigntradingpartnersoftenlacksuchlimitationsandexceptions,whichcanlimittheexportstrengthandcompetitivenessoftheseU.S.companies.GovernmentProcurementGovernmentsaresomeofthelargestbuyersoftechnologyproducts.AmodernizedNAFTAshouldmaintainandexpandaccesstogovernmentprocurementmarketsinCanadaandMexico,sothatU.S.techcompaniescanincreasetheirexportstogovernmentbuyers.MarketaccessopportunitiesforU.S.companiesaregrowingasgovernmentsseektomodernize,becomemoreefficientandproductive,andprovidemoreonlineservicestocitizens.ThiscreatessignificantopportunitiesforU.S.companiestocompeteandselltheirtechnologyproductsandservicestogovernments.Tothisend,werecommendthatthegovernmentprocurementchapterinamodernizedNAFTAincludeprovisionsthat:

• ContinueArticle1003,NationalTreatmentandNon-Discrimination,ofNAFTA,whichassuresthatgoodsoriginatingfromNAFTApartiesaretreatednolessfavorablythanthemostfavorabletreatmentfromgoodsoriginatingfromotherNAFTAparties.Thetechnologyindustryisglobalinnaturewithglobalsupplychains,sourcesofproduction,andconsumers.TechnologycompanieshavespentdecadesestablishingsecuresupplychainstomeetrequirementssetinU.S.lawandtheGovernmentProcurementchapterofNAFTA.Anychangetothischapterintherenegotiationsshouldtakeintoconsiderationthereliancethatindustrieshaveputintotheexistingagreement’srequirementsandthepotentialharmchangeswouldhaveontheabilityofcompaniestoexporttoCanadaandMexico;and

• Committhepartiestoexplorewaystofacilitateprocurementofinnovativetechnologyproductsandservices,suchashigh-performanceserversandcloudcomputingservices,whichdidnotexistwhenNAFTAwasnegotiated.

ExpectedImpact:WeanticipatethatanychangestothefavorabletreatmentofgoodsfromsignatorycountriesunderNAFTAcouldlimittheabilityoftheboththeU.S.governmenttoprocuregoodsneededtoperformavarietyoffunctions,aswellasU.S.companiestoprovideproductsandservicestotheMexicanandCanadiangovernments.Aforward-lookingGovernmentProcurementchapterwouldhelpmakeU.S.companiesandexportersmorecompetitiveandincreasetheirabilitytosellproductsandservicestoallthreegovernments.

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