Chapter 19 Digital Trade

I. INTRODUCTION.

 

The inclusion of Chapter 19 in the USMCA is one of the most significant indications of the modernization of the NAFTA and a major reason the Office of the United States Trade Representative has described the USMCA as a 21st Century Trade Agreement. The NAFTA took effect in 1994, at a time when the internet was new and “digital trade” did not yet exist, so the NAFTA did not include any digital trade provisions. The USMCA addresses digital trade by including Chapter 19 Digital Trade, in addition to other chapters that include provisions relating to digital trade, such as Chapter 7 Customs Administration and Trade Facilitation, Chapter 17 Financial Services, and Chapter 20 Intellectual Property.

 

II. EXECUTIVE SUMMARY.

 

The digital trade and e-commerce provisions of the USMCA focus on certain key objectives, among which are the following: cooperation among the Parties, ensuring the free flow of data, avoidance of the implementation of unnecessary regulatory barriers by a Party, avoidance of duties on electronic transmissions, ensuring consumer protection, building confidence in digital trade, protection of intellectual property, protection of privacy, and liability protection for internet providers and social media platforms. An overarching objective of Chapter 19 is the establishment of a framework for each Party to cooperate with each other on digital regulations, policies, enforcement and compliance, relying to an extent on existing international principles. Given that some countries have mandated that servers be located in their territory, have imposed restrictions on digital trade and on the free flow of data, have imposed duties on electronic transmissions, or have implemented regulations for unfounded reasons, specific provisions of Chapter 19 address these concerns. Other provisions of Chapter 19 ensure that suppliers are not restricted in their use of electronic authentication or electronic signatures in digital transactions. Chapter 19 further addresses the adoption and maintenance of consumer protection laws applicable to digital trade, as well as the protection of privacy, while respecting the legal frameworks of each USMCA Party’s privacy laws. Additionally, the provisions of Chapter 19 limit a Party’s ability to require the disclosure of proprietary computer source codes and algorithms. The USMCA also prevents a Party from maintaining measures intended to impose liability on third party digital-content providers, such as internet providers and social media platforms, for harm arising from, for example, hosting content created by its users, while at the same time protecting the ability of a Party to prevent illegal activity from operating through an interactive computer service.  Finally, the USMCA digital trade provisions protect small businesses from taxes on e-commerce.

 

III. LEGAL DISCUSSION.

 

The most significant articles of Chapter 19 are summarized below.

 

Article 19.2: Scope and General Provisions. The Parties recognize the economic growth opportunities provided by digital trade and seek to promote consumer confidence in such, as well as eliminate unnecessary barriers.

 

Article 19.3: Customs Duties. Parties are prohibited from imposing duties and fees in connection with the importation or exportation of digital products transmitted electronically from one Party to another. However, the USMCA does not preclude the imposition of internal taxes and fees on digital products transmitted electronically within a Party’s territory.

 

Article 19.4: Non-Discriminatory Treatment of Digital Products. A Party may not discriminate against digital products originating in another Party, either because they were created in another Party or were created by a person from another Party. However, differential treatment among different types of digital products is permitted, and subsidies and grants are not subject to the non-discriminatory provision.

 

Article 19.5: Domestic Electronic Transactions Framework. Each Party must maintain a legal framework governing electronic transactions consistent with the principles of the UNCITRAL Model Law on Electronic Commerce 1996, to avoid unnecessary regulatory burdens on electronic transactions, and to accept input from interested persons on the development of its legal framework for electronic transactions.

 

Article 19.6: Electronic Authentication and Electronic Signatures. Parties may not deny the validity of a signature merely because it is in electronic form. The parties agree to encourage the recognition of electronic signatures and the use of electronic authentication.  However, with respect to certain categories of transactions, the Parties may require additional safeguards in connection with the use of electronic signatures and electronic authentication.

 

Article 19.7: Online Consumer Protections. Each Party agrees to adopt and maintain consumer protection laws to protect consumers from fraudulent or deceptive commercial activities when engaging in digital trade. The Parties recognize the importance of cooperation among their respective national consumer protection agencies and agree to cooperate with respect to consumer protection for online commercial activities.

 

Article 19.8: Personal Information Protection. Each Party agrees to adopt and maintain a legal framework that provides for the protection of the personal information of digital trade users, considering the guidelines of internationally recognized organizations. Each Party agrees to strive to adopt non-discriminatory practices for protecting digital trade users from personal information protection violations occurring within its jurisdiction and agrees to publish information on the personal information protections it provides to digital trade users, including how to pursue remedies and how to comply with legal requirements.

 

Article 19.9: Paperless Trading. Each Party will endeavor to accept a trade administration document submitted electronically as the legal equivalent of the paper version of such document.

 

Article 19.10: Principles on Access to and Use of the Internet for Digital Trade. Mutually recognized principles are set forth in connection with the benefits for consumers to be able to access and use services and applications of a consumer’s choice available on the Internet, and to connect the end-user devices of a consumer’s choice to the Internet.

 

Article 19.11: Cross-Border Transfer of Information by Electronic Means. The Parties agree not to prohibit or restrict the cross-border transfers of information, including personal information, by electronic means, in connection with the conduct of the business of a covered person. However, the Parties may adopt restrictions as necessary to achieve a legitimate public policy objective, provided such restrictions are not applied in an unjustified discriminatory manner and are no more restrictive on trade than necessary.

 

Article 19.12: Location of Computer Facilities. No Party will require a covered person to use or locate computing facilities in that Party’s territory as a condition for conducting business in such territory.

 

Article 19.13: Unsolicited Commercial Electronic Communications. Each Party must adopt or maintain measures for the limitation of unsolicited commercial electronic communications and to provide recourse in its law for unsolicited commercial electronic communications that do not comply with such measures.

 

Article 19.14: Cooperation. The Parties must cooperate with each other and exchange information and experiences relating to regulations, policies, enforcement and compliance relating to digital trade, as well as to actively promote digital trade. The Parties will consider establishing a forum to address digital trade issues.

 

Article 19.15: Cybersecurity. The Parties will endeavor to build capabilities and strengthen existing collaboration mechanisms relating to cybersecurity, to identify and protect against cybersecurity risks and to detect, respond to and recover from cybersecurity events.

 

Article 19.16: Source Code. The Parties agree not to require the transfer of, or access to, a source code of software owned by a person of another Party, or to an algorithm expressed in that source code, as a condition for importation or trade. However, regulatory bodies and judicial authorities may require the disclosure of such source code of software or algorithm in certain cases, such as specific investigations and judicial proceedings, subject to safeguards against unauthorized disclosure.

 

Article 19.17: Interactive Computer Services. The Parties will not treat a supplier or user of an interactive computer service as an information content provider in determining liability for damages relating to information stored or made available by the service, except to the extent the supplier or user has created or developed such information. Article 19.17 does not apply to intellectual property rights, which are addressed in USMCA Chapter 20 Intellectual Property. Notably, Article 19.17 will not apply to Mexico for the first three years after the USMCA takes effect.

 

Article 19.18: Open Government Data. The Parties acknowledge that facilitating public access to and use of government information fosters economic and social development, and, to the extent the Parties choose to make government information available to the public, they are encouraged to do so in a format that can be searched, retrieved, used, reused and redistributed.

 

Other supplementary provisions of the USMCA relating to digital trade include the following:

 

Chapter 7 Customs Administration and Trade Facilitation, provides in Article 7.8 for express shipments with respect to importations of goods, including those arising from digital trade, which are valued at or below a fixed amount set out under the Party’s law. In such cases, no customs, duties or taxes will be assessed on the importation of express shipments. More information may be found in the summary of Chapter 7 Customs Administration and Trade Facilitation.

 

Chapter 17 Financial Services provides in Article 17.17 that the transfer of information, including personal information, may be transferred into and out of a Party’s territory by electronic or other means for the conduct of business, subject to the right of a Party to protect personal data, personal privacy and confidentiality. Article 17.18 provides that no Party may require computing facilities to be in the Party’s territory as a condition for conducting business in such territory, so long as the Party’s regulatory authorities have sufficient access to required information. Notably, Article 17.18 will not apply to Canada in the first year after the USMCA takes effect.

 

Chapter 20 Intellectual Property provides in part in Article 20.79 that each Party confirms that the enforcement procedures set forth in Article 20.82 (Civil and Administrative Procedures and Remedies), Article 20.83 (Provisional Measures), and Article 20.85 (Criminal Procedures and Penalties) shall be available to the same extent with respect to acts of trademark infringement, as well as copyright or related rights infringement, in the digital environment. Article 20.89: Legal Remedies and Safe Harbors provides in part in paragraph 1 that each Party will ensure that legal remedies are available for rights holders to address copyright infringement and shall establish or maintain appropriate safe harbors for Internet Service Providers, which shall include: (a) legal incentives for Internet Service Providers to cooperate with copyright owners to deter the unauthorized storage and transmission of copyrighted materials or, in the alternative, to take other action to deter the unauthorized storage and transmission of copyrighted materials; and (b) limitations in its law that have the effect of precluding monetary relief against Internet Service Providers for copyright infringements that they do not control, initiate or direct, and that take place through systems or networks controlled or operated by them or on their behalf.

 

IV. CONCLUSION.

 

Chapter 19 of the USMCA recognizes the importance of digital trade in today’s economy. Importantly and, unlike its predecessor the NAFTA, this new chapter specifically addresses the vital subject of digital trade at the international level. The provisions of Chapter 19 require the Parties to cooperate with each other to ensure the free flow of data across borders, while providing the necessary consumer and privacy protections required to instill confidence in the digital trade sector.  At the same time, the USMCA limits the Parties’ ability to adopt overly restrictive measures that would impede digital trade. The USMCA digital trade provisions provide a flexible framework upon which the Parties can continue to rely on and refine as technology evolves.

 

The movement of data is a significant factor in many sectors. In assessing the potential impact of the USMCA, the United States International Trade Commission concluded that the new agreement would benefit, for example, U.S. computer service and digital platform service firms, the U.S. telecommunications (telecom) industry, exporters of low-value shipments (including e-commerce exports), and U.S. payment services. One can expect that the USMCA will have the same type of salutary impact on such sectors in Mexico and Canada.

 

CONTACT INFORMATION.

 

Daniel Cavazos | dcavazos@ccn-law.com

Tel: +1 (956) 686-5883

Marissa S. Rodriguez | msandoval@ccn-law.com

Tel: +1 (956) 686-5883

Julieta Guzmán | jguzman@ccn-law.com.mx

Tel: +52 (442) 262-0316

Fernando Govea | fgovea@ccn-law.com.mx

Tel: +52 (656) 648-7127

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