Written evidence submission from IBM Corporation (DTD0012)

 

The IBM Corporation’s Submission

to the House of Commons’

International Trade Select Committee

Call for Evidence on Digital Trade and Data

 

Introduction

  1. IBM is the world’s leading hybrid cloud and AI company, offering a wide range of technology and consulting services, including cloud solutions, AI, Blockchain, IoT, and the world’s most advanced servers, mainframes, supercomputers and quantum computing solutions.  IBM’s business, strategy and technology consultants help clients transform by modernizing their existing applications and by building new AI-infused data analysis capabilities on the leading open hybrid cloud platform.  IBM has been investing in the United Kingdom since 1912, when the International Time Recording Company (the predecessor to IBM UK) was formed.  Today, IBM United Kingdom maintains its position as a leader in technology and business services, supporting British clients across all industry sectors.

 

  1. IBM appreciates the opportunity to provide comments to the Trade Select Committee. This consultation provides an important opportunity to help formulate an ambitious and robust digital trade agenda to support the United Kingdom’s long-term prosperity and global competitiveness.  The UK’s exit from the European Union, coupled with the COVID-19 crisis, underscores the urgent need to strengthen digital trade capabilities to address rising protectionism, new vulnerabilities in global supply chains, and the unprecedented acceleration in digitization and technology adoption.  

 

  1. Open markets, facilitated by trade agreements with strong digital trade provisions, will be essential to IBM’s success in the UK – and to the success of our UK employees and clients.   We therefore welcome this opportunity to share our views on why strong digital trade provisions, such as the free and secure flow of data across borders, are fundamental to the long-term competitiveness of the United Kingdom. Indeed, the importance of the digital economy has only grown as consumers, governments and companies rely increasingly on the internet and other digital technologies to communicate, deliver essential services and conduct business.

 

  1. Unfortunately, despite the tremendous benefits that accrue to countries that embrace the digital economy, the COVID crisis is accelerating the trend of data protectionism, as governments pursue “data sovereignty” through a range of trade barriers.  A strategic and forward-looking trade policy must aggressively combat these barriers, which not only harm technology companies, but undermine the competitiveness of British companies in traditional industries that are embracing technological transformation.

 

  1. The UK can and must play an influential role in setting international standards for digital trade that will ensure long-term economic growth and job creation.  Therefore, future bilateral and multilateral agreements negotiated by the UK should: 

 

  1. Ensure the free and secure flow of data across borders and permit companies to operate without requiring them to use local infrastructure or build expensive and redundant data centers.  
  2. Protect intellectual property by ensuring that companies are not forced to hand over source code and algorithms or transfer their technology, IP, trade secrets, production processes, or other proprietary information as a condition of doing business. 
  3. Ensure technology choice and non-discriminatory treatment for digital services and encourage the widespread use of open architectures[1] to drive innovation in key technologies, including cloud computing, AI and 5G telecommunications.
  4. Protect innovation in encryption products to meet consumer and business demand for product features that protect security and privacy while allowing law enforcement access to communications consistent with applicable law.
  5. Prohibit digital customs duties—including by supporting an extension of the World Trade Organization moratorium on digitally-delivered products, services and content—to protect the flow of software, information and digitally-enabled services that drive innovation.
  6. Negotiate new, cross-border data protocols that encourage the safe and secure sharing of medical data, such as vaccine and research data, to accelerate medical research and data-driven innovations that can save lives and further promote public health before, during and after a global health crisis. 
  7. Promote a “reasonable care” approach to online security and welfare by modernizing laws to ensure consumer-focused internet platform companies take greater responsibility for what is posted on their websites.
  8. Promote the development of reasonable and balanced regulations that prioritize risk-based frameworks to govern the development and use of AI in a transparent, understandable and fair manner. 
  9. Encourage trading partners to promote access to government-generated public data in machine-readable and accessible forms for use by the public. 
  10. Build trust in the digital economy by enhancing privacy and cybersecurity cooperation internationally and developing legal frameworks that promote international convergence and interoperability.

 

Q: What are the main barriers faced by UK businesses engaging in digital trade?

 

  1. Across the world, there are increasing calls for “data sovereignty,” mirroring renewed criticism of free trade and globalization.  Barriers to digital trade include, but are not limited to, data localization policies which force companies to localize data or build expensive data center facilities as a condition of operation; technology transfer requirements; forced disclosure of source code, algorithms and other IP; tariff and non-tariff barriers on ICT hardware and software; and burdensome licensing requirements.

 

  1. These barriers, particularly restrictions on the legitimate and secure movement of data across borders, undermine internet stability and interoperability. The overall effect is to impede the legitimate flow of information across borders, fragmenting markets and weakening data-driven economic activity. 

 

 

 

Q: What opportunities does digital trade present for UK businesses?

 

  1. COVID-19 has created unprecedented disruptions in the global economy, the full impact of which will not become clear for years to come. Companies of all sizes are grappling with how to conduct business, reach customers, and maintain supply chain operations in the face of national lockdowns and travel restrictions.

 

  1. But what is clear is that the pandemic has accelerated a trend that was already well underway – the digitization of the global economy. Increased Internet access and data flows were fueling this transformation long before the present crisis.  Before the pandemic, cross-border data flows made a bigger contribution to global GDP than trade in manufactured goods.  But today, virtual engagement and interactions have become the new norm.  Between the start of the COVID-19 crisis and May of 2020, demand for broadband communication services increased at a record pace, with some operators reporting a 60 percent increase in Internet traffic compared to before the crisis.

 

  1. Digital trade, then, provides a critical opportunity to accelerate integration with, and increase access to, global markets for UK businesses of all sizes and across all industry sectors, supporting broad economic growth.  The Business Roundtable found that economies that are more connected to cross border data flows experience up to 40 percent higher GDP growth than those that are less connected. 

 

  1. For example, digital trade supports the growth and competitiveness of UK companies in traditional industry sectors.  Industry 4.0, or the fourth major revolution in manufacturing, is being driven by the intersection of big data and machine learning. These changes are transforming how manufacturers operate, innovate and compete globally, all underpinned by the unprecedented volume of data that is being generated in the increasingly networked world.  For UK manufacturers operating in multiple countries and jurisdictions, the movement of data is essential to their competitiveness and digital transformation. 

 

  1. The benefits of digital trade also accrue to small- and medium-sized enterprises (SMEs).  Cloud-based digital services, for example, allow SMEs access to the same technologies and solutions as major multinational companies. An entrepreneur launching a small start-up can, with a simple internet connection, utilize cutting edge digital services, such as AI, that previously would have only been available to the largest companies. The internet, and the flow of data across borders, allows companies of all sizes to access new markets and find new opportunities. Travel or a physical presence is no longer a prerequisite to expand a business to other markets.

 

  1. Digital trade can also help UK companies better support environmental stewardship by encouraging innovation and technology adoption. From disaster management, to biodiversity protection, sustainable farming or promoting more sustainable modes of transport, harnessing the power of data can help businesses make better environmental and investments decisions.  For example, Blockchain technologies can help securely and intelligently manage renewable energy grids. And AI solutions can combine predictive technology with weather data and IoT sensors to help give farmers greater insights about planning, ploughing, planting, spraying and harvesting. In many cases, the data sets underpinning these innovations are transnational in nature. 

 

 

Q: What approaches should the UK take towards negotiating digital/data provisions in future trade agreements, including data protection, net neutrality, data localization and safeguards related to intellectual property?

 

  1. The UK has long promoted free trade and multilateralism and has a disproportionately strong interest in safeguarding open markets, even as other nations seek to build resilience through discriminatory policies. Critically, pandemic recovery and strategic autonomy need not entail a resort to protectionism. On the contrary, the foundations for future resilience, competitiveness and growth should be built on openness and responsible innovation.

 

  1. To that end, trade agreements should include provisions that facilitate the safe and secure movement of data across borders, protect underlying IP and enhance public trust in technology by promoting transparency in its operation and deployment through new provisions addressing emerging technologies.  The UK can draw on, and build upon, existing digital trade provisions in recent agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the UK-Japan CEPA, the Digital Economy Partnership Agreement, and the US-Mexico-Canada Agreement.

 

  1. Drawing on these agreements, UK negotiators should include provisions in future trade agreements that:

 

  1. Enable the free flow of data:  UK companies must be able to move data securely across borders and should not be forced to localize data or infrastructure as a condition of doing business. Trade agreements must include specific provisions protecting (1) the movement of data across borders and (2) the ability of companies to operate without requiring them to use local infrastructure or build expensive and redundant data centers.
  2. Protect underlying IP:  UK companies should not be forced to share source code and algorithms or transfer technology as a price for doing business. Trade Agreements must protect innovation by prohibiting Parties from requiring companies to hand over source code and algorithms or transfer their technology, IP, trade secrets, production processes, or other proprietary information as a condition for accessing the market.
  3. Ensure technology choice and encourage open digital architectures:  Innovative companies should be able to utilize the technology that works best and suits their needs. The use of closed architectures prevent interoperability and competition, limiting the ability of companies to use the most cost-effective, secure, and innovative technologies. Trade agreements should encourage the widespread use of open architectures to drive innovation in key technologies, including cloud computing, Artificial Intelligence and 5G telecommunications and ensure companies can choose their suppliers of choice, irrespective of where they are headquartered. Parties should accord non-discriminatory treatment to the services, service suppliers, and digital products of the other Party, including for new and innovative digital products and services.
  4. Promote trust in Artificial Intelligence and emerging technologies:  Trust in technology is essential to ensure the safe and secure adoption of emerging technologies such as AI. Trade agreements should encourage governments to develop reasonable and balanced regulations that prioritize risk-based frameworks to govern particular uses of AI. This approach can help provide assurance to businesses and consumers that the use of emerging technologies are transparent, explainable and fair.
  5. Promote open access to government-generated public data:  Large government data sets can enable innovation in commercial applications and services for companies and consumers. Trade agreements should encourage governments to share data sets in machine-readable and accessible forms for use by the public.
  6. Engender greater consumer trust in the digital economy by enhancing privacy and cybersecurity:  Trade agreements should require Parties to adopt legal frameworks to protect personal information and promote industry best practices, international standards and other cooperative mechanisms to strengthen privacy and data protection. In parallel, agreements should encourage Parties to strengthen cybersecurity capabilities through international cooperation and adoption of risk-based approaches to cybersecurity regulation.

 

  1. In parallel, the UK should continue to support efforts to enhance cybersecurity, privacy, and data protection cooperation between governments and the private sector, such as the Data Free Flows with Trust Initiative launched by former Prime Minister Shinzo Abe at the 2019 G-20, the World Trade Organization e-commerce (JSI) negotiations, and ongoing work by the OECD on privacy, data protection and cross-border data flows.

 

Q: What does the UK-Japan Agreement indicate about the UK’s direction and approach to digital trade and data governance in future trade negotiations?

 

  1. IBM applauds the completion of the Comprehensive Economic Partnership Agreement (CEPA) concluded last year. It represents a strong framework upon which to build future trade agreements that include robust digital trade provisions.

 

  1. Specifically, CEPA contains a comprehensive e-commerce chapter that goes beyond the EU-Japan Agreement’s digital trade provisions.  The new agreement draws on clauses and language from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP), that Japan is party to and that the UK has formally applied to join.

 

  1. These provisions cover key areas, including cross-border data flows, commitments to high standards of data protection, and protections on source code. It also incorporates some language from the US-Mexico-Canada Agreement (USMCA) relating to open government data, which will allow innovative UK AI companies to develop and train their products and deploy them readily in the Japanese market.

 

  1. Moreover, regulatory divergence is a significant barrier to digital trade, so the agreed framework in CEPA of dialogue and cooperation on emerging technology regulation is particularly valuable. The commitment to encourage the use of interoperable electronic authentication and electronic signatures will help to significantly reduce cost and red tape for businesses trading with Japan.

 

  1. CEPA also includes robust provisions on data transfers, personal information protection and mechanisms to promote interoperability among privacy law frameworks, while also limiting data localization mandates. It is particularly relevant that these rules apply on a cross-sectoral basis, including for the financial sector, making this agreement a prospective-looking precedent that the UK should seek to replicate in future agreements.  The digital trade provisions in the agreement with Japan serve as a key baseline for future trade agreements. 

 

Q: What objectives should the UK have when negotiating digital and data provisions during its accession talks to the CP-TPP?

 

  1. The CP-TPP is the most advanced and forward-looking agreement in the Asia-Pacific-Rim region with novel digital trade provisions.  The current 13 members of CP-TPP have agreed to strong digital trade disciplines, designed to not only accelerate integration across the member economies, but also serve as a new baseline for future trade agreements.   Accession to CP-TPP would bring wide-ranging benefits to UK citizens and economic interests across the entire width and breadth of the UK economy. UK trade negotiators should ensure full adoption of the disciplines enshrined in the CP-TPP e-Commerce Chapter and consider these provisions as the minimum baseline for any future bilateral or multilateral trade agreements.

 

Q: What domestic and international law is pertinent to the UK government’s approach to digital trade?  

 

  1. New trade agreements negotiated by the UK should follow the guidelines and protocols outlined in the Secretary of State for International Trade’s announcement to Parliament on 16 July 2018.  This includes, under the Constitutional Reform and Governance Act 2010, procedures to lay before Parliament for ratification any new trade agreement following consultations with public and private sector stakeholders. 

 

  1. Within this negotiating and ratification framework, we encourage UK trade negotiators to consult closely with Parliament and key stakeholders to help identify and develop robust digital trade provisions.  Negotiators should also draw on the UK Data Protection Act 2018 to advance data privacy principles and ensure interoperability with the privacy frameworks of trading partners. 

 

  1. Finally, the UK government should launch consultation mechanisms and forums with the private sector to develop meaningful approaches to trust and transparency with emerging technologies.  Such mechanisms, for example, can be based on the European Commission’s High-Level Expert Group on Artificial Intelligence and the Charter of Trust for Cybersecurity, a consortium of primarily European companies working to build trust and security in the digital economy.

 

 

 

February 2021

 

[1] Open architectures are design specifications for hardware or software components that any manufacturer or developer can use to develop components that can easily interoperate with components developed by other manufacturers and developers.