Over the last few months, digital trade, although nothing new, has become even more important in supporting crucial services during the coronavirus health pandemic. For instance, digital technology became helpful in quickly sharing information about the virus and to the larger population. Digital technology has also been instrumental in allowing for the cross-border provision of educational and financial services during this period of physical distancing. To date there is only one trade deal that addresses digital trade in-depth. That is the US-Mexico-Canada Agreement (USMCA), which is scheduled to take effect on July 1st. This post highlights what importers and exporters should know about the USMCA as it relates to this growing part of international business transactions and that has proven significant in the midst of the global health crisis–digital trade.
In 2018, the United States, Mexico, and Canada signed a revised version of the 26-year old North American Free Trade Agreement (NAFTA), which is the current USMCA. The USMCA was ratified by Mexico in 2019 and by the United States and Canada in 2020. The USMCA is considered a “new, modernized trade agreement for the 21st century.”
Three simple things to know about the agreement as it pertains to digital trade are that it:
- Provides duty-free treatment for the cross-border trade of digital products, such as e-books, software, and videos;
- Prevents rules and regulations that discriminate against digital products that were not produced in the home country (e.g. Canada making it more difficult for the sale of digital products from the United States or Mexico to protect local producers from foreign competition); and
- Promotes the privacy protections and cybersecurity collaboration (for complete information on Chapter 19 of the USMCA, click here).
The USMCA’s emphasis on liberalizing digital trade on the North American continent presents opportunities for both products and services that rely on digital technology. However, the actual deepening of digital trade in North America goes beyond a mere trade treaty. Rather, other areas must be addressed, such as: 1) adequate access to the internet and computers, especially for the lower-income populations; and 2) the proper infrastructure to allow for equal benefits for the populations throughout the region.
In sum, the global health pandemic has highlighted the significance of cross-border digital trade. The USMCA takes into account the 21st digital economy. Once the USMCA trade deal takes effect, U.S. businesses that provide digital goods and services can leverage the agreement to access the Canadian and Mexican markets much more easily and vice-versa. Notably, the right infrastructure must be in place to ensure that everyone benefits equally from digital trade.
Additional Resources:
- For recent trends in digital services, sign up for the GRIIT Newsletter
- Digital Trade in Services and the Global Health Pandemic on GRIIT Group Live
- USMCA negotiations, etc. on the GRIIT blog, International Trade Examiner, and our trade policy briefs
- Analysis of USMCA and insights on Mexico on the GRIIT podcast and YouTube channel
Image courtesy of hywards at FreeDigitalPhotos.net