What do the following examples have in common?
- In 2009, China proposed an indigenous innovation policy that would have explicitly restricted government contracts to goods whose embodied intellectual property was domestically owned.
- In 2010, Norway ruled that cities could not use cloud computing services unless the servers were located domestically. Denmark followed suit in 2011.
- In 2011, Kazakhstan attempted to require all .kz domains to operate on domestic servers.
- In 2012, India proposed a requirement that government agencies purchase electronic goods and services with 30% local content.
These cases are examples of required localization: governments attempt to restrict the sale of goods and services within their territory to those which have been produced locally. The localization can be in terms of embodied intellectual property rights, manufacturing facilities, or facilities providing cloud computing services.
Governments cite national security concerns, or consumer protection issues or privacy and government access worries when imposing these restrictions. From a trade and economic point of view, however, they increase economic nationalism at the expense international trade.
What seemed like a series of isolated incidents now seems to be a trend, which if left unchecked, could seriously undermine the goal of increasing the flow of goods and services across borders. The 2012 Special 301 Report (p. 18) and the 2012 Section 1377 telecom trade report document the extent to which these localization initiatives could hinder bi-lateral, regional and global economic integration.
SIIA and other worldwide businesses and trade associations are seeking an effective response to the growing threat of a new protectionism based on localization initiatives.
Two principals that are gaining wide currency among industry and NGOs stand in stark opposition to this new protectionism. These principles are embodied in the agreement between the Office of the United States Trade Representative and the European Commission on a set of trade-related principles for information and communication technology (ICT) services:
- Cross-Border Information Flows: Governments should not prevent service suppliers of other countries, or customers of those suppliers, from electronically transferring information internally or across borders, accessing publicly available information, or accessing their own information stored in other countries.
- Local Infrastructure: Governments should not require ICT service suppliers to use local infrastructure, or establish a local presence, as a condition of supplying services. In addition, governments should not give priority or preferential treatment to national suppliers of ICT services in the use of local infrastructure, national spectrum, or orbital resources.
Since this agreement was made in April 2011, several intergovernmental, industry and non-governmental civil society groups have endorsed these principles, including SIIA, the Aspen Institute, the Organization for Economic Cooperation and Development (OECD), and a group of trade associations and companies lead by the National Foreign Trade Council.
There is momentum in both the private sector and the U.S. government to take on this issue in the strongest possible way. The US government is ramping up its efforts to move these principles forward. For instance, they are embodied in the electronic commerce chapter of the U.S. proposal in the Trans-Pacific Partnership (TPP) trade negotiations.
SIIA urges that this issue be moved to the highest levels of U.S. government decision making and raised in all significant international venues including economic gatherings of heads of state such as the recent G-8 meeting, meetings of the ministers of the Asia Pacific Economic Cooperation group, committees of the World Trade Organization, OECD working groups and trade discussions such as TPP. Only a sustained, high-level commitment from the U. S. government will turn the tide against this new form of economic nationalism.
Mark MacCarthy, Vice President, Public Policy at SIIA, directs SIIA’s public policy initiatives in the areas of intellectual property enforcement, information privacy, cybersecurity, cloud computing and the promotion of educational technology.