Yesterday on August 16, 2017, the first round of the NAFTA modernization talks started.  Our views on NAFTA modernization can be found here.  SIIA wishes the negotiators speedy success and urges the United States, Canada, and Mexico to adopt modern digital trade rules and strengthen respect for intellectual property rights.

Mexico’s Under Secretary for Finance, Vanessa Rubio, yesterday also called for Fintech to be included in NAFTA negotiations.  SIIA agrees with that view.  New technologies such as Fintech, but also blockchain, artificial intelligence, and the Internet of Things ought to be able to thrive under the new arrangement.  At a minimum, this requires excellent provisions on cross-border data flows.

Ms. Rubio said that the United States is focused on transparency whereas Mexico considers that rules need to be standardized.  SIIA considers both approaches to be valid.  However, standard rules will not always be possible so interoperability frameworks may be needed.  The new NAFTA rules should also be as general as possible.  Rules established for a specific technology rapidly become obsolescent.  Trade agreements and domestic legislation should be technologically neutral.  This is a core SIIA principal. 

On June 13, 2017, SIIA submitted these comments on the EU’s Fintech consultation.  Some of the ideas contained in the consultation might be useful to the negotiators.  The comment contains a number of basic ideas, which the negotiators may wish to consider.

1)    Adopt a technologically neutral stance.  Trade negotiators should focus on the activity in question, not the technology used to conduct the activity.

2)    Promote the free flow of data within the NAFTA area.  Restrictions on data flows would inhibit the development of Fintech.

3)    Exceptions that would allow for data localization should be based on GATS Article XIV, i.e. standard trade law exceptions.

4)    If needed, make reasonable interoperability mechanisms available to companies so that they can engage in cross-border data flows.

5)    Adopt strong prohibitions against forced technology transfers as a condition for doing business.  Although this is not currently a problem in the NAFTA countries, agreeing to such rules could have precedential value, especially as the United States considers an investigation into China’s forced technology transfer rules and intellectual property rights practices.   

6)    Be open to the use of non-traditional “alternative data.”  Although this is primarily a domestic regulatory issue, trade negotiators could prohibit restrictions if they have discriminatory purpose.

7)    Respect algorithms for what they are, a form of intellectual property.  Algorithms are expensive to develop and underpin many business models.  The value added for much data consists of algorithms developed to use that data.  Therefore, source code disclosure should not be required.

8)    Promote privacy protections while at the same ensuring high quality data is available so that innovative services can be developed.

9)    Encourage regulatory “sandboxes” allowing for Fintech experimentation in the NAFTA countries.

10)   Include a provision in the modernized NAFTA mandating annual cybersecurity exchanges with a view to harmonize best practices. 

As the reader can see, these suggestions do not require a “Fintech chapter” in the modernized NAFTA.  Our hope is that the new rules will be broad enough to promote the use of known emerging software-based technologies such as Fintech, blockchain, artificial intelligence, the Internet of Things, etc.  The real trick will be for negotiators to come up with language that promotes the use of unknown new software-based technologies in the future.  Because we do know one thing: we don’t know what new exciting technologies will be available five years from now.  But, we can craft agreements that enable those technologies to thrive and still protect businesses and consumers.  

Carl Schonander is Senior Vice President for Global Public Policy.