Trans-Pacific Partnership: TPP Rewards Apple, Facebook, Google, Others With Unrestricted Flow Of Cross-Border Data

ATLANTA -- Companies as diverse as tractor maker John Deere, turbine manufacturer General Electric and search-engine behemoth Google rely on the free flow of bits and bytes to keep customers happy. The Trans-Pacific Partnership, a 12-nation agreement completed in Atlanta this week, reflects this imperative by including the world’s first comprehensive set of trade rules aimed at preventing governments from blocking data flows across national borders.

The digital provisions of the TPP represent a rare example of trade policy getting ahead of the game. Most trade negotiations since 1945 have focused on rolling back hurdles to trade, mainly tariffs, that arose in the 19th century. The Pacific trade deal aims at ones that arose in the 21st -- a century that isn’t even over yet, TPP boosters note wryly.

“These are groundbreaking provisions that are very much about preventing new barriers from being erected,” said Chris Padilla, vice president for government and regulatory affairs at IBM.

Big Blue, of course, made its name making big computers, but its business these days has more to do with IT services. Employees in Missouri, Iowa and Louisiana work with IBM clients across Asia, making fluid data transmission more important than tariffs on hardware, Padilla said.

The highest judicial authority in the European Union Tuesday vividly illustrated how moving data across borders is both commercially essential and politically fraught. The European Court of Justice invalidated an agreement with the United States intended to ease data flows. The pact, known as Safe Harbor, provided a measure of legal protection for companies such as Facebook and Amazon to whisk data across the Atlantic.

Now, national privacy regulators are able to impose their own restrictions on data flow, precisely the kinds of strictures the Asia-Pacific trade deal is intended to halt.

The United States, the chief cheerleader for the TPP, wasn’t always its own best advocate, said Peter Allgeier, a former deputy U.S. trade representative. Revelations by whistleblower Edward Snowden about the National Security Agency’s data-collection practices unearthed suspicions, never far from the surface, that U.S. trade policy has more than a little in common with espionage. “The NSA debate has really hurt,” Allgeier said.

The decision by the European court underscores the NSA problem that continues to haunt American companies. The case originated with Max Schrems, an Austrian citizen who charged the agreement violated European privacy rules because Facebook and other firms cooperated with the NSA.

To head off this type of conflict with TPP members, the pact includes an explicit recognition of member nations’ rights to regulate data flows to police fraud, prevent spam and protect privacy.

The debate over information flow and privacy has taken place at a time when even old-fashioned machines plug into networks -- the “Internet of Things” that includes security systems, heating and air conditioning and cars, among many other machines. Data restrictions could become the tariffs of an economy where digital traffic is pervasive, constant and ever-increasing.

On the most fundamental level, TPP grants data, for the first time, the same legal protections in international trade law as goods. If it’s from a TPP member country, it’s treated as data flowing within the country would be treated. The legal standard is high for exceptions. Violators can end up before special arbitration panels.

Without peering into the back-office infrastructure of major corporations, it’s hard to appreciate how central international data transmission affects basic company functions. Banks, for example, employ a security practice known as “sharding,” in which a single customer’s information is splintered into discrete packets and stored at different locations to prevent a single hacker from compromising it.

“It’s a great security measure, but it relies on cross-border flows,” said Allgeier, now head of the Coalition of Service Industries, which represents financial companies such as AIG, Metlife and JPMorgan Chase.

The new trade deal also bars governments from imposing duties on electronic transmissions. None of the 12 TPP members actually does this, but the practice is not unknown. Brazil, for example, offers tax rebates on domestic smartphone applications that don’t apply to foreign ones.

More controversially, it bars “forced localization,” rules requiring companies to store data within national borders. The chief impetus for stopping the practice has been the explosive growth of cloud computing.

Google and Amazon offer storage in the cloud with little thought to the customer’s location to harness the economies of scale that come with concentrating storage capacity in locations with cheap electricity and land, among other attributes. Creating cloudlets within individual countries would defeat much of the purpose of this relatively new, and still growing, industry.

“All these kinds of rules do are ensure the duplication of infrastructure in every country and raise costs for everybody,” said Michael Smart, a vice president at Rock Creek Advisors, a Washington consultancy.

And those rules are hard to upend once in place.

Australia, for example, requires some health data be stored on servers within the country. In a 2013 survey, the Australian government found 79 percent of people thought moving private data offshore was inappropriate. The result: Australian trade negotiators dug in their heels, and insisted the Australian law receive a specific exemption from TPP rules.

“No matter where data is stored, our people think it’s vulnerable,” Robb said. “We need this law until we have greater confidence in storage systems.”

If governments do shy away from measures that interrupt data flows, a diverse set of industries may have TPP to thank for it.

John Deere and Boeing are known for knocking out heavy machines in construction and agriculture, uses that obscure the data-heavy functions of tractors and passenger jets. Less well known: Boeing planes transmit, from each flight, terabytes of data from thousands of sensors to computers that mine the information for patterns in performance. Deere tractors use GPS-based systems to regulate fertilizer use and increase crop yields.

General Electric, the American colossus that’s abandoning financial services to focus on manufacturing, is blending cloud technology with what’s often called the “sensor revolution,” the inexorable advance of the devices. They might vacuum up data on performance, safety, temperature, speed and other variables, and might show up in a watch, printed on a flexible piece of plastic or installed on an assembly line.

Currently, sensors at GE gas turbines in TPP countries such as Mexico, Australia and Malaysia collect data to improve fuel efficiency and reduce outage times. The company also writes the software behind the sensors and operates a cloud for industrial users.

“The future of manufacturing will be driven by the ability to analyze data locally and across borders to enhance the safety, efficiency and reliability of products,” said Karan Bhatia, vice president for global government affairs and policy.

The trade pact is also written in a way that will let its effects spill over into other jurisdictions. Apple, as an American company, will enjoy its protections even for data stored in non-TPP countries as it flows into the new free-trade zone. That’s not a trivial matter, given the company’s recent announcement it will invest $1.7 billion in new data centers in Ireland and Denmark that will host information for customers of iTunes and other services.

The deal reached in Atlanta also underscored the inability of the United States to force its legal regime for a digital economy onto the rest of the world.

The United States had sought to change Chile’s system for telling Internet service providers they were hosting material that infringes on intellectual property rights. This “notice-and-takedown” system requires only a notification from the copyright holder in the United States and judicial consent in Chile. TPP will not change that.

So, the furious debate between, for example, the recording industry and advocates of an open Internet, will continue in the United States. Judicial notice-and-takedown is “a travesty,” fumes Neil Turkewitz, executive vice president for international issues at the Recording Industry of America. The Center for Democracy and Technology, an online freedom pressure group, calls the Chilean system “arguably more favorable to Internet free expression and innovation” than the U.S. approach.

Still, the contrast between the rules in the new trade deal and practices in China, often called the Great Firewall, could hardly be greater.

Japanese Economy Minister Akira Amari threw down the gauntlet to Beijing after the negotiation wrapped up Monday. Yes, he noted, it’s now theoretically possible for China to join the TPP -- the agreement is open to countries throughout the Asia-Pacific. But only on the terms hammered out in Atlanta.

Thanks to TPP, Amari said, the Asia-Pacific region will embrace “ free flow of goods, capital, people, as well as information.”