    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

       21ST CENTURY TRADE BARRIERS: PROTECTIONIST CROSS BORDER DATA FLOW
                          POLICIES IMPACT ON U.S. JOBS

    =======================================================================

                                    HEARING

                                   BEFORE THE

            SUBCOMMITTEE ON DIGITAL COMMERCE AND CONSUMER PROTECTION

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 12, 2017

                                   __________

                               Serial No. 115-66

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          Printed for the use of the Committee on Energy and Commerce

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                        COMMITTEE ON ENERGY AND COMMERCE

                              GREG WALDEN, Oregon
                                     Chairman
    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    TIM MURPHY, Pennsylvania             ELIOT L. ENGEL, New York
    MICHAEL C. BURGESS, Texas            GENE GREEN, Texas
    MARSHA BLACKBURN, Tennessee          DIANA DeGETTE, Colorado
    STEVE SCALISE, Louisiana             MICHAEL F. DOYLE, Pennsylvania
    ROBERT E. LATTA, Ohio                JANICE D. SCHAKOWSKY, Illinois
    CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
    GREGG HARPER, Mississippi            DORIS O. MATSUI, California
    LEONARD LANCE, New Jersey            KATHY CASTOR, Florida
    BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
    PETE OLSON, Texas                    JERRY McNERNEY, California
    DAVID B. McKINLEY, West Virginia     PETER WELCH, Vermont
    ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
    H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
    GUS M. BILIRAKIS, Florida            YVETTE D. CLARKE, New York
    BILL JOHNSON, Ohio                   DAVID LOEBSACK, Iowa
    BILLY LONG, Missouri                 KURT SCHRADER, Oregon
    LARRY BUCSHON, Indiana               JOSEPH P. KENNEDY, III,
    BILL FLORES, Texas                       Massachusetts
    SUSAN W. BROOKS, Indiana             TONY CARDENAS, California
    MARKWAYNE MULLIN, Oklahoma           RAUL RUIZ, California
    RICHARD HUDSON, North Carolina       SCOTT H. PETERS, California
    CHRIS COLLINS, New York              DEBBIE DINGELL, Michigan
    KEVIN CRAMER, North Dakota
    TIM WALBERG, Michigan
    MIMI WALTERS, California
    RYAN A. COSTELLO, Pennsylvania
    EARL L. ``BUDDY'' CARTER, Georgia

            Subcommittee on Digital Commerce and Consumer Protection

                             ROBERT E. LATTA, Ohio
                                     Chairman
    GREGG HARPER, Mississippi            JANICE D. SCHAKOWSKY, Illinois
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BEN RAY LUJAN, New Mexico
    MICHAEL C. BURGESS, Texas            YVETTE D. CLARKE, New York
    LEONARD LANCE, New Jersey            TONY CARDENAS, California
    BRETT GUTHRIE, Kentucky              DEBBIE DINGELL, Michigan
    DAVID B. McKINLEY, West Virgina      DORIS O. MATSUI, California
    ADAM KINZINGER, Illinois             PETER WELCH, Vermont
    GUS M. BILIRAKIS, Florida            JOSEPH P. KENNEDY, III,
    LARRY BUCSHON, Indiana                   Massachusetts
    MARKWAYNE MULLIN, Oklahoma           GENE GREEN, Texas
    MIMI WALTERS, California             FRANK PALLONE, Jr., New Jersey (ex
    RYAN A. COSTELLO, Pennsylvania           officio)
    GREG WALDEN, Oregon (ex officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Robert E. Latta, a Representative in Congress from the State
      of Ohio, opening statement.....................................     1
        Prepared statement...........................................     3
    Hon. Janice D. Schakowsky, a Representative in Congress from the
      State of Illinois, opening statement...........................     4
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, opening statement..............................     5
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, prepared statement........................    80

                                   Witnesses

    Victoria A. Espinel, President and CEO, BSA--The Software
      Alliance.......................................................     6
        Prepared statement...........................................     9
        Answers to submitted questions...............................    88
    Dean C. Garfield, President and CEO, Information Technology
      Industry Council...............................................    22
        Prepared statement...........................................    24
        Answers to submitted questions...............................    90
    Jennifer Daskal, Associate Professor of Law, American University
      Washington College of Law......................................    41
        Prepared statement...........................................    43
    Morgan Reed, President, ACT--The App Association.................    53
        Prepared statement...........................................    55
        Answers to submitted questions...............................    93

                               Submitted material

    Statement of the Insights Association............................    81
    Statement of the Electronic Privacy Information Center...........    83

       21ST CENTURY TRADE BARRIERS: PROTECTIONIST CROSS BORDER DATA FLOW
                          POLICIES IMPACT ON U.S. JOBS

                                  ----------

                           THURSDAY, OCTOBER 12, 2017

                      House of Representatives,
         Subcommittee on Digital Commerce and Consumer
                                            Protection,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:17 a.m., in
    room 2322, Rayburn House Office Building, Hon. Robert Latta,
    (chairman of the subcommittee) presiding.
        Present: Representatives Harper, Burgess, Lance, Guthrie,
    Bilirakis, Mullin, Walters, Costello, Schakowsky, Clarke,
    Dingell, Matsui, Welch, Kennedy, Green, and Latta.
        Staff Present: Zachary Dareshori, Staff Assistant; Melissa
    Froelich, Chief Counsel, Digital Commerce and Consumer
    Protection; Adam Fromm, Director of Outreach and Coalitions;
    Ali Fulling, Legislative Clerk, Oversight and Investigations,
    Digital Commerce and Consumer Protection; Theresa Gambo, Human
    Resources/Office Administrator; Elena Hernandez, Press
    Secretary; Paul Jackson, Professional Staff, Digital Commerce
    and Consumer Protection; Bijan Koohmaraie, Counsel, Digital
    Commerce and Consumer Protection; Madeline Vey, Policy
    Coordinator, Digital Commerce and Consumer Protection; Greg
    Zerzan, Counsel, Digital Commerce and Consumer Protection;
    Michelle Ash, Minority Chief Counsel, Digital Commerce and
    Consumer Protection; Lisa Goldman, Minority Counsel; and
    Caroline Paris-Behr, Minority Policy Analyst.

    OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Mr. Latta. Well, good morning. I would like to call the
    Subcommittee on Digital Commerce and Consumer Protection to
    order. And the chair now recognizes himself for 5 minutes for
    an opening statement.
        And good morning again. I appreciate our witnesses for
    being with us today for this important hearing on digital trade
    and international data flows and the impact on U.S. industry.
    The free transmission of data across borders contributes to a
    seamless exchange of information, goods, and services. Digital
    trade has been a significant benefit to the U.S. economy,
    contributing an estimated 2.4 million new jobs, raising real
    U.S. GDP, and exceeding the economic trade value of traditional
    goods and services.
        Today, we will hear from our witnesses about the current
    state of digital economy and its positive impact on U.S.
    competition, job creation, and economic growth. I hope that
    this hearing will be a jumping off point for a closer
    examination of these and other nontariff trade matters in the
    months to come.
        What is digital trade? It happens in each and every one of
    our daily lives when we use our personal laptops, tablets,
    smartphones, or when companies work to complete projects for
    customers. While this might seem broad and difficult to define,
    one of our witnesses today, Mr. Garfield, puts forward a clean
    definition: Digital trade is simply an economic activity
    involving the movement of digital information across borders.
        At the enterprise level, companies might be using services
    and applications like cloud computing, data processing, and
    predictive analytics. Uses can include processing payroll or
    designing products that are easy to manufacture at the highest
    quality possible for the lowest price.
        Through our work already this year, this committee has
    heard from many companies using the power of data flows to
    improve public policy goals like improving passenger safety and
    mobility, access through self-driving car technology. The
    internet, data, and digital trade now support economic growth
    in all sectors of the U.S. economy. U.S. industry around the
    country, whether in manufacturing, retail, and energy, and
    healthcare rely on cross-border data flows to run their
    businesses. This technological phenomenon also supports local
    businesses and smaller enterprises, including entrepreneurs and
    app developers.
        According to a study by eBay, over 90 percent of eBay U.S.
    businesses trade across borders with more than 80 percent
    reaching five or more international markets. These small to
    medium-size companies touch all States and congressional
    districts.
        In my home State of Ohio, the software industry directly
    employs over 72,000 people and was responsible for $11 billion
    in direct value-added GDP in 2014. In my district, there are
    over 38,000 high-tech workers in exports of digital goods and
    services totaling over $690 million in 2014.
        While these numbers are a few years old, in my visits to
    businesses around my district, I have certainly seen the impact
    of high-skilled workers in the manufacturing industries.
    Despite the many benefits of cross-border data flows, many
    trading partners have considered or adopted nontariff barriers,
    such as restrictions on cross-border data flows or requirements
    to localize data, production, or facilities.
        If the internet is characterized by openness, then data
    localization and other data flow restrictions create conflict
    either intentionally as a protectionist measure or
    unintentionally. The witnesses here today can speak about the
    data localization measures in force and the potential spread of
    additional restrictions. I am very pleased to hear about how
    the impact of these policies on businesses in my district are
    affected and around the country.
        Last year, the European Union and the United States put
    into place the EU-U.S. Privacy Shield. And last month, the
    European Commission began its first review of the Privacy
    Shield. In 1 year, the Privacy Shield has been embraced by over
    2,500 U.S. companies of all sizes and business models to allow
    for the free flow of data between the EU and the United States.
        Finally, there are multiple trade negotiation dialogues
    that are expected to set the stage for digital trade and data
    flow policy moving forward. Current trade agreements were
    written before the advent of the internet as we know it today.
    Going forward, there is a tremendous potential for the digital
    economy as we consider cross-border data flow policies and
    robust enforcement measures.
        We are living in an extraordinary time of growth in today's
    digitally integrated global economy. The impact of digital
    trade and cross-border data flows will reach far and wide, and
    I believe Congress can play a significant role in supporting
    the people and businesses that depend on the free and open flow
    of data. I look forward to hearing from our witnesses today on
    this very timely matter.
        And at this time, I would like to recognize the ranking
    member of the subcommittee, the gentlelady from Illinois, for 5
    minutes for an opening statement.
        [The prepared statement of Mr. Latta follows:]

                   Prepared statement of Hon. Robert E. Latta

        Good morning. I appreciate our witnesses being here today
    for this important hearing on digital trade and international
    data flows, and the impact on U.S. industry.
        The free transmission of data across borders contributes to
    a seamless exchange of information, goods, and services.
    Digital trade has been a significant benefit to the U.S.
    economy, contributing to an estimated 2.4 million new jobs,
    raising real U.S. GDP, and exceeding the economic trade value
    of traditional goods and services.
        Today we will hear from our witnesses about the current
    state of the digital economy and its positive impact on U.S.
    competition, job creation, and economic growth. I hope that
    this hearing will be a jumping-off point for a closer
    examination of these and other non-tariff trade matters in the
    months to come.
        What is digital trade? It happens in each and every one of
    our daily lives-when we use our personal laptops, tablets and
    smartphones, or when companies work to complete projects for
    customers.
        While this might seem broad and difficult to define, one of
    our witnesses today, Mr. Garfield, puts forward a clean
    definition: ``Digital trade is simply any economic activity
    involving the movement of digital information...across
    borders.''
        At the enterprise level, companies might be using services
    and applications like cloud computing, data processing, and
    predictive analytics. Uses can include processing payroll or
    designing products that are easy to manufacture at the highest
    quality possible, for the lowest price.
        Through our work already this year, this committee has
    heard from many companies using the power of data flows to
    improve public policy goals like improving passenger safety and
    mobility access through self-driving car technology.
        The Internet, data, and digital trade now support economic
    growth in all sectors of the U.S. economy. U.S. industry around
    the country--whether in manufacturing, retail, energy, and
    health care--rely on ``cross-border data flows'' to run their
    businesses.
        This technological phenomenon also supports local
    businesses and smaller enterprises including entrepreneurs and
    app developers. According to a study by eBay, over 90 percent
    of eBay's U.S. businesses trade across borders, with more than
    80 percent reaching five or more international markets.
        These small-to-medium sized companies touch all states and
    congressional districts. In my home State of Ohio, the software
    industry directly employed over 72,000 people, and was
    responsible for $11 billion in direct value-added GDP in 2014.
        In my district, there were over 38,000 high-tech workers
    and exports of digital goods and services totaled over $690
    million in 2014. While these numbers are a few years old, in my
    visits to businesses around my district, I have certainly seen
    the impact of high-skilled workers in the manufacturing
    industry.
        Despite the many benefits of cross border data flows, many
    trading partners have considered or adopted nontariff barriers,
    such as restrictions on cross-border data flows or requirements
    to localize data, production, or facilities.
        If the Internet is characterized by openness, then data
    localization and other data flow restrictions create conflict--
    either intentionally, as a protectionist measure, or
    unintentionally.
        The witnesses here today can speak about the data
    localization measures in force and the potential spread of
    additional restrictions. I am very interested to hear about the
    impact of these policies on businesses in my district and
    around the country.
        Last year the European Union and United States put into
    place the EU-U.S. Privacy Shield and last month, the European
    Commission began its first review of the Privacy Shield. In one
    year, the Privacy Shield has been embraced by over 2,500 U.S.
    companies--of all sizes and business models--to allow for the
    free flow of data between the EU and the U.S.i
        Finally, there are multiple trade negotiations and
    dialogues that are expected to set the stage for digital trade
    and data flow policy moving forward. Current trade agreements
    were written before the advent of the Internet as we know it
    today. Going forward, there is tremendous potential for the
    digital economy as we consider cross border-data flow policies
    and robust enforcement measures.
        We are living in an extraordinary time of growth in today's
    digitally-integrated global economy. The impact of digital
    trade and cross-border data flows will reach far and wide, and
    I believe Congress can play a significant role in supporting
    the people and businesses that depend on the free and open flow
    of data. I look forward to hearing from our witnesses today
    about this timely issue.

           OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

        Ms. Schakowsky. Thank you, Chairman Latta.
        The internet has made our world dramatically more connected
    than ever before. It facilitates the exchange of ideas, keeps
    families connected, and creates new opportunities for global
    commerce. Over 2.3 billion people have access to the internet,
    and this is expected to grow to 5 billion by 2020.
        Digital commerce comprises a growing share of the global
    economy, and, in fact, a McKinsey report claims that, ``soaring
    cross-border data flows now generate more economic value than
    traditional flows of traded goods.'' Cross-border data flows
    allow for quick communication, whether it is a personal message
    or a customer order. It also introduces additional risks to
    consumers, privacy, and data security.
        Global digital commerce has become a necessity in the
    United States economy. Although the internet is global, the
    rules governing data are not. Differences among countries can
    create challenges for businesses and consumers. Countries
    should not be dissuaded from protecting their citizens' privacy
    and security. But some of the policies we see across the world
    today are counterproductive to data security and privacy.
    Requiring local servers can create new security risks. The U.S.
    should also not empower regimes that monitor or restrict flow
    of data as a limit on their citizens' rights to free speech and
    expression.
        We need to distinguish between policies that truly
    represent an unnecessary or harmful barrier to digital trade
    and those policies designed to protect privacy and security.
    When it comes to data privacy and security, current U.S. law is
    lacking. We heard a clear example of that last week when former
    Equifax CEO Richard Smith testified in front of our committee.
    By failing to patch a known vulnerability, Equifax allowed the
    data of 145.5 million Americans to be compromised. I still have
    a lot of questions about this breach. Today, my Democratic
    colleagues and I are sending a letter to the majority
    requesting additional hearings to get answers that Americans
    deserve.
        The Equifax breach impacted not only Americans, but also
    consumers outside the United States. So you can understand if
    consumers and governments abroad have their doubts about the
    data practices of American companies. This is yet another
    reason why we need to act in Congress to improve data security.
    And last week, I introduced the Secure and Protect Americans'
    Data Act to ensure that companies take sufficient steps to
    protect consumers' data and promptly notify law enforcement and
    consumers if a data breach occurs and provide meaningful relief
    to breach victims.
        Digital trade partners are also concerned about U.S.
    surveillance practices. Section 702 expires at the end of this
    year, and we should take this opportunity to better protect
    privacy, while still providing for our Nation's security.
        So as we strengthen our own laws, we need to continue
    engaging with partners, such as the European Union, on ways to
    facilitate cross-border data flows, while ensuring that
    consumers here and abroad enjoy the privacy and security they
    expect. The United States benefits greatly from digital trade,
    and we should work to keep data flowing across borders. That
    requires improving our own laws and engaging with other Nations
    on how to keep consumers' data and rights protected. I look
    forward to hearing from our witnesses and getting our
    perspective on this complex issue.
        I yield back.
        Mr. Latta. Well, thank you very much. The gentlelady yields
    back.
        And the chairman of the full committee is not here, but the
    gentleman from Texas would like to claim his time.

    OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
                  IN CONGRESS FROM THE STATE OF TEXAS

        Mr. Burgess. Thank you, Mr. Chairman, and thanks for
    holding the hearing. Thanks to our witnesses for being with us
    this morning.
        In 2015, the European Court of Justice invalidated the
    United States-European Union Safe Harbor Framework. This
    subcommittee held hearings to evaluate the effect that this
    would have on trade, the risks to technological advancements,
    and the economic impact of this ruling. In the absence of an
    agreement, small and medium-sized businesses were certain to
    suffer, leading to decreased output and job losses. Almost a
    year later, the United States and the European Union approved
    the Privacy Shield Framework to replace the Safe Harbor and
    allow compliance with European Union data protection
    requirements.
        Even though the Privacy Shield was approved, the United
    States is again facing restrictions that will decrease cross-
    border data flows and may even lead to actual data theft or
    theft of intellectual property or increased control of
    information flows. The free flow of data improves trade
    relations. It actually enhances technologies like blockchain
    and artificial intelligence that rely on large datasets and
    improve security by increasing awareness of foreign activity,
    as well as providing redundancy for data through
    disaggregation.
        In our interconnected world, it is imperative that concerns
    over privacy do not become protectionist. I certainly look
    forward to what our witnesses have to share with us today about
    how to safely and securely continue the advancements afforded
    by cross-data border flows.
        And, again, Mr. Chairman, thank you for convening this
    hearing, and thanks again to our witnesses. And I will yield
    back my time.
        Mr. Latta. Well, thank you very much. The gentleman yields
    back.
        And at this time, we will now move to our witnesses. We are
    concluding our members' statements. And pursuant to committee
    rules, all members will have their opening statements made part
    of the record.
        And, again, I want to thank our witnesses for being with us
    today and taking time to testify before the subcommittee. And
    today's witnesses will have the opportunity to give a 5-minute
    opening statement, followed by a round of questions from our
    members.
        Our witness panel today, for today's hearing, will include
    Ms. Victoria Espinel, the President and CEO of BSA, The
    Software Alliance; Mr. Dean Garfield, President and CEO of
    Information Technology Industry Council; Mr. Morgan Reed,
    President of ACT--The App Association; and Ms. Jennifer Daskal,
    Associate Professor of Law at American University Washington
    College of Law.
        So I appreciate your being with us today.
        And, Ms. Espinel, we will begin with you today. And just
    pull that mic up close and just turn the mic on. And we look
    forward to your testimony today. Thank you.

    STATEMENTS OF VICTORIA A. ESPINEL, PRESIDENT AND CEO, BSA--THE
        SOFTWARE ALLIANCE; DEAN C. GARFIELD, PRESIDENT AND CEO,
       INFORMATION TECHNOLOGY INDUSTRY COUNCIL; JENNIFER DASKAL,
      ASSOCIATE PROFESSOR OF LAW, AMERICAN UNIVERSITY WASHINGTON
       COLLEGE OF LAW; AND MORGAN REED, PRESIDENT, ACT--THE APP
                              ASSOCIATION

                    STATEMENT OF VICTORIA A. ESPINEL

        Ms. Espinel. Thank you so much.
        Good morning, Chairman Latta, Ranking Member Schakowsky,
    and members of the subcommittee. My name is Victoria Espinel,
    and I thank you for the opportunity to testify here today on
    behalf of BSA--The Software Alliance.
        BSA members provide software-based services that have a
    significant positive impact on the U.S. economy and the global
    economy. Those services, such as cloud computing, data
    analytics, artificial intelligence, depend on the ability to
    transfer data freely across borders. As a result, eliminating
    barriers to cross-border data flows is an important priority
    for BSA and for our members, and I am very pleased that it is a
    priority for this committee as well.
        When I testified before this committee 2 years ago, the
    U.S.-EU Safe Harbor agreement had just been invalidated by the
    European Court of Justice. The Safe Harbor agreement was a
    critical mechanism that allowed data to move back and forth
    between the United States and Europe, and, without it,
    transatlantic digital trade and the growth and job creation
    that go with it, on both sides of the Atlantic, would have been
    in jeopardy.
        The bipartisan letter that was signed by the chairman and
    ranking member of the full committee and the subcommittee, and
    many other members of the committee, instilled much-needed
    confidence into the process, and the United States and the
    European Union were able to come to a conclusion of a new
    agreement, which has been called the Privacy Shield. And I
    thank the members of the committee for your leadership at that
    time. But I thank you as well for keeping continued focus on
    this issue, because we are continuing to see concerns around
    the world.
        Our economy today is rooted in digital data. Across every
    industry sector cloud computing and data analysis have made
    businesses more agile, more responsive to their customer needs,
    and more competitive around the world. And all of these
    technologies depend on the ability to move data across borders.
        So as an example, human resources is an important element
    of every company that exists. If you are a company that has
    employees across the United States, but also employees around
    the world, if you lack the ability to transfer that data about
    your employees back and forth, it will make it, among other
    things, much harder and much slower to hire and much harder and
    much slower to be able to reward your employees as you should.
    For U.S.-based companies, that also means that they will have
    less jobs in the United States because they will have to source
    and resource those functions overseas.
        In cancer treatments, we are seeing great advances in
    artificial intelligence, allowing doctors to be able to make
    diagnoses more quickly and more accurately. And that is very
    dependent on the ability for doctors to be able to access as
    much data as possible about patients around the world.
        In manufacturing, data around the world are allowing
    manufacturers to be much more responsive to their customer
    needs more quickly. And for small manufacturers in particular,
    that feedback loop to be able to get information from their
    customers and then be able to redesign their products to be
    more responsive to their customer needs is extremely important.
        And what makes all of those examples work is the ability
    for data to move across borders. This is about real jobs and
    economic growth in the United States.
        Last month, software.org, the BSA Foundation, released a
    study that we conducted with data from the Economist
    Intelligence Unit that shows that the software industry alone
    supports over 10 million jobs in the United States and
    significant jobs in every one of the 50 states of the United
    States. For example, since 2014, the number of software jobs
    has increased by nearly 10 percent in Ohio and by 14.4 percent
    in Illinois. Nationwide, softwares contributed $1.14 trillion
    to the U.S. GDP and has grown at three times the speed of the
    overall economy.
        U.S. leadership on digital trade will help ensure that this
    growth continues. We see three clear opportunities for Congress
    and the administration to act.
        The first is to modernize the digital trade agenda. And, at
    the moment, NAFTA presents an opportunity for us to do that.
    When NAFTA was negotiated, the commercial internet essentially
    did not exist, digital trade was in its infancy, and, as a
    result, the agreement, understandably, does not address digital
    issues. So there is a clear opportunity. We were encouraged to
    see that the administration included digital trade and cross-
    border data flows in this negotiating the objectives. And we
    are very pleased that Congress has also included those in the
    objectives that they have set out for the administration to
    meet.
        Second, ensure the continued success of the Privacy Shield.
    I alluded a moment ago to this committee's important role and
    the conclusion of the Privacy Shield. The Privacy Shield just
    had, last month, its first review. There are 2,500 companies
    that have already certified under it, as the chairman noted.
    And continuing to impart to both the U.S. administration and to
    the Europeans the importance of the Privacy Shield continuing
    is extremely important.
        And the third thing I would suggest is to continue to
    encourage like-minded trading partners to promote rules that
    support the movement of data across borders, whether that is in
    formal trade negotiations or outside of formal trade
    negotiations. The U.S. is the leader in the technology that
    drives economic growth and depends on the ability for data to
    move across borders. We need the United States Government to
    also show leadership on this issue if we are to remain dominant
    in this area. And we know that if we do not, there are other
    countries that would be happy to move into that position.
        So, with that, I will conclude my remarks. And thank you
    very much for continuing to focus on this issue.
        [The prepared statement of Ms. Espinel follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Latta. Well, thank you very much for your testimony.
        And, Mr. Garfield, you are recognized for 5 minutes. Thank
    you.

                     STATEMENT OF DEAN C. GARFIELD

        Mr. Garfield. Thank you, Chairman Latta, Ranking Member
    Schakowsky, members of the committee. On behalf of 62 of the
    world's most dynamic and innovative companies, as well as my
    colleagues at ITI, I thank you for the opportunity to present
    at this hearing and for your efforts to spotlight this
    important issue.
        This hearing arrives at an opportune time. We submitted my
    testimony for the record. So rather than repeat it, what I will
    do is highlight three things. One, why this issue is so
    important. Two, our sense of the state of play. And then,
    three, where we see gaps where your efforts in American
    leadership could be particularly valuable.
        On the first, this issue is so important because, in many
    respects, digital trade and cross-border data flows are the air
    that sustains 21st century commerce. Moreover, the United
    States has a comparative advantage that will be unfairly
    undermined without vigilance and our intervention.
        It is hard to think of anything that we do today that
    doesn't involve cross-border data flows in digital trade. Just
    my day today reflects that. When I got up this morning, I
    decided to go on a run and to download some music. Because the
    cloud servers that Ms. Espinel mentioned, and content-
    distribution networks are distributed all around the world, the
    music that I downloaded resulted in cross-border data flows.
    When I got in my car and drove here, and stopped at the grocery
    store, my car, the farming equipment for the food that I
    bought, as well as the delivery truck, have sensors to ensure
    safety that involve cross-border data flows and digital trade.
    I flew back from California yesterday. And while I was on my
    flight, my airplane has sensors that are making sure that the
    flight gets there safely, and if there is a problem when we get
    to the ground, that the ground crew is prepared to deal with
    any problems that may exist. Cross-border data flows, digital
    trade.
        I could go on and on, but I think you get the point. While
    cross-border data flows and digital trade involve technology,
    it is not a technology issue. It is an all-of-America economic
    issue. In fact, America has a significant economic comparative
    advantage in digital trade and cross-border data flows. Ms.
    Espinel mentioned cloud servers. Seventeen of the top 20 cloud
    companies in the world are based here in the United States.
        What is the state of play? Most countries around the world
    see that comparative advantage and are unwilling to sit by and
    watch it continue to exist. In China, for example, we face a
    tapestry of rules that are aimed at undermining that
    comparative advantage, whether it is forced localization or
    check and IP transfer, source code transfers, we see that
    catching fire. So markets like Indonesia and Vietnam are doing
    the same.
        In other markets, including in some of our allies like
    Europe, we see some of the same. While the motivation may be
    quite distinct, the end result is the same, which is
    undermining the competitive advantage and comparative advantage
    of U.S. companies, and, from our perspective, doing damage to
    their own economy.
        What can Congress do about it and what should it do? I
    endorse all of the things that Victoria mentioned, and would
    add two more. One is that Congress, in passing the bipartisan
    Trade Prioritization and Accountability Act, TPA, made the
    point that digital trade should be a point of emphasis. While
    we have a number of trade agreements that are progressing
    today, where the opportunity exists to advance digital trade,
    whether that is in NAFTA, which we strongly support and hope
    the administration will as well, or in the efforts around the
    KORUS Agreement, and upgrading that agreement as well, which we
    also view as incredibly important, the opportunity exists to
    make sure that we continue to advance our competitive advantage
    in American interests in a way that is fair.
        The second is that acting in America's interests means, in
    this instance, working with the rest of the world. And so,
    second, we have an opportunity here to provide global
    leadership on what the rules of the road should be on digital
    trade and cross-border data flows. The President has announced
    that he is heading to China in November. That is an opportunity
    to work with the Chinese to bring them onboard to following
    global rules around digital trade.
        We are hopeful that in working with Congress and working
    with the administration, we can ensure that this issue, which
    is so fundamental to America's leadership in the world, is
    prioritized but also acted on appropriately.
        Thank you for the time.
        [The prepared statement of Mr. Garfield follows:]

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        Mr. Latta. Thank you very much for your testimony.
        And, Ms. Daskal, you are recognized for 5 minutes. Thanks
    again.

                      STATEMENT OF JENNIFER DASKAL

        Ms. Daskal. Thank you. Chairman, ranking member, and
    members of the committee, thank you for inviting me to testify
    here today.
        The free movement of data, as we have heard, is critical to
    economic growth, has benefits for data security, and promotes
    privacy, speech, and associational rights. Yet increasingly,
    states are adopting a range of measures that restrict data
    flows to the United States and elsewhere and adopting costly
    data localization requirements pursuant to which companies must
    store data locally.
        Many of these restrictions are directed specifically at the
    United States or adopted in direct response to concerns about
    U.S. policies and market power. The motivating factors are
    multiple, including fears about the scope of U.S.-foreign
    intelligence surveillance, concerns about the adequacy of U.S.
    consumer privacy protections, a desire by foreign governments
    to ensure access to data that they seek for law enforcement
    investigations, and sheer protectionism.
        There is, as a result, no single, all-encompassing
    solution. But there are also, nonetheless, important steps that
    the United States can and should take to address some of these
    motivating factors and promote a free and open internet.
    Specifically, I identify four key areas for reform.
        First, improvements to key foreign intelligence
    surveillance rules so as to better promote both privacy and the
    free flow of data, while also continuing to protect national
    security. Second, the adoption of enhanced consumer privacy
    protections. Third, reforms to U.S. law to better facilitate
    law enforcement access to data across border, consistent with
    baseline substantive and procedural protections. And, fourth,
    the use of trade policy has been discussed already to preclude
    data localization mandates and impose penalties on those who
    engage in digital protectionism.
        In my written testimony, I go into detail in all of these
    areas. But given my limited time here, I am going to focus on
    two: surveillance policy and law enforcement access to data
    across border.
        As we have already heard, in 2015, the European Court of
    Justice sent shockwaves to the business community by striking
    down the then-in-place Safe Harbor Framework given, primarily,
    concerns about U.S. foreign intelligence surveillance. The
    Framework had been relied on by close to 5,000 companies to
    support the transfer of data from the EU to the United States.
        The Safe Harbor Framework, as we have also heard, has now
    been replaced by Privacy Shield, which just underwent its first
    review. But both Privacy Shield, and an alternative basis for
    allowing such transfers of data from the EU, what is known as
    standard contractual clauses, are now subject to legal
    challenge. And, in fact, just 2 weeks ago, the Irish High Court
    referred one of those challenges back up to the European Court
    of Justice based on ``well-founded'' concerns about the scope
    of U.S. surveillance and accountability mechanisms. If these
    bases for transferring data from the EU to the United States
    are struck down, it would be devastating to the free flow of
    data and to United States' businesses.
        There are, however, reforms that Congress can and should
    push that would help respond to these concerns. In fact, the
    House Judiciary Committee's USA Liberty Act, introduced earlier
    this week, includes several such important reforms.
    Importantly, it codifies an already implemented restriction on
    so-called about communications pursuant to which communications
    that are about a foreign target and not just to or from the
    foreign target can be acquired. This kind of about collection
    yields large quantities of incidental collection on those that
    wouldn't be otherwise legitimate targets and is, thus, a source
    of concern.
        The bill also sets up new transparency and accountability
    mechanisms, and, importantly, it includes improvements to the
    Privacy and Civil Liberties Oversight Board, which would allow
    it to better function. This board plays an important role in
    overseeing surveillance, policies, and, importantly, from a
    European perspective, reviewing complaints made by EU citizens
    regarding U.S. national security surveillance. It is now down
    to one member, so it can't currently function. So Congress also
    should push the administration to move forward the other four
    nominees needed to fill this board.
        Secondly, Congress should also respond to the legitimate
    concerns of foreign law enforcement officers that find
    themselves subject to lengthy delays in accessing emails and
    other communication content of their own nationals in the
    investigation of local crime based simply on the fact that some
    of the data is U.S. held. Notably, the Obama administration,
    and again the Trump administration, have sent up legislation to
    Congress that would ease some of those restrictions and
    facilitate access to cross-border data for law enforcement
    investigations, subject to important baseline substantive and
    procedural protections. This is something that should be
    supported.
        Collectively, these reforms are important to help ensure
    the free flow of data, to promote the U.S. in the global
    economy, and to protect data security and data privacy.
        Thank you.
        [The prepared statement of Ms. Daskal follows:]

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        Mr. Latta. Well, thank you very much for your testimony.
        And, Mr. Reed, you are recognized for 5 minutes.
        Thank you.

                        STATEMENT OF MORGAN REED

        Mr. Reed. Thank you.
        Chairman Latta, Ranking Member Schakowsky, and
    distinguished members of the committee, my name is Morgan Reed,
    and I serve as the president of The App Association, which
    represents 5,000 small business app makers and connected-device
    companies across the globe. Our members leverage the
    connectivity of devices from cars, to phones, to refrigerators,
    to produce innovation that enhances our lives.
        The app ecosystem is now valued at roughly $143 billion and
    represents the front end for $8 trillion of international
    trade. Impressively, the big numbers produced by this powerful
    engine are actually driven by small businesses. Our members
    range from one-person shops with a few hundred people at the
    most. Yet virtually all of our members are global businesses
    with customers and users around the world. And small business
    in America is busy creating 64 percent of new private sector
    jobs.
        The United States leads in world digital innovation. Why?
    Because American companies are at the forefront of using data
    to improve the lives of our customers. With over 7 million tech
    sector jobs, as you have heard from all of us on this panel,
    and a growth rate of 3 percent, the policy environment of the
    U.S. has produced successful tech industry, and countries all
    over the world are working to expand their tech sectors as
    well.
        We must take steps to ensure continued job growth in the
    industry, and we see three key barriers. Nontariff digital
    trade barriers result from domestic policies rooted in privacy,
    some that require data localization; conflicts between U.S. law
    enforcement agencies' access to data stored overseas, which can
    and should be addressed with the passage of the International
    Communications Privacy Act, or ICPA. And I want to recognize
    Vice Chairman Harper as one of the cosponsors of that bill as
    well as full committee Chairman Walden, who is not here. And I
    want to thank you for your support on that important bill. We
    are looking to get Chairman Latta to support it as well.
        And then, finally, any actions that weaken IP protections
    either through arbitrary enforcement of the law or through
    domestic sourcing preferences.
        Everyone in the room understands the way data is a key
    aspect of how we use and benefit from the internet. We heard
    about the billions of dollars flowing across the border in
    terms of general commerce. But I would like to discuss some
    aspects of cross-border data that you might not have
    considered.
        The future of medicine is in data that helps doctors make
    the right decisions. Think of it this way. You go to a
    physician, and a successful physician might have seen 25,000
    patients by the time that they see you. But they have only seen
    about 500 with your genotype, age, gender, comorbidity, racial
    history, et cetera, et cetera. Now, imagine that the doctor can
    use data to know that, for example, a woman of Irish descent
    responds better to one medication and South Asian males under
    the age of 30 respond better to another. But we can only
    provide that kind of leap forward if we have data, including
    global data, about treatment and effectiveness.
        And this isn't a pipe dream. In your district, Congressman
    Harper, the University of Mississippi Medical Center is relying
    on remote patient monitoring and digital data collection to
    provide tens of thousands of underserved in the state, and they
    rely entirely on technologies developed by our members and
    platforms.
        Chairman Latta, in your district you have NAMSA, a leading
    medical research organization, and they rely on the Privacy
    Shield to interact with data from researchers around the world.
        And an issue that I know Congresswoman Dingell knows well,
    the next advances in car safety technology will rely on access
    to data. Self-driving cars will run on data to tell the
    difference between a tree and a bicycle. And yet if we have
    foreign governments or our own government interfering with that
    cross-border data flow, we will block that key resource, which
    will harm our ability to save lives.
        And it isn't all about life saving. Sometimes we just do it
    to make our lives easier. In Congressman Schakowsky's district,
    we have Paylocity, which helps manage software on the web for
    international clients to handle HR, payroll, and more.
        Congressman Guthrie, in your district we have Hitcents,
    which is an innovative mobile apps and games company. And yet
    they are a global player with global customers.
        Congresswoman Clarke, we have got Brooklyn Software Dev
    that does web development applications and mobile applications.
    Again, it is a global company in your district with five
    people.
        Congresswoman Matsui, you have got Health Rescue in your
    district. They are looking to expand internationally, and yet
    worries about cross-border data flow are harming their ability
    to get bigger, stronger, and do a better job for their
    patients.
        In order to keep all of this going, we need Congress to
    act, and we need them to focus on the three key elements that
    you have heard from all of us today. We need to resolve the
    questions about law enforcement access. We need to resolve the
    questions about how we deal with intentional or other digital
    barriers to trade that serve as protectionists. And then,
    finally, we need to remember that my members' most valuable
    resource is often the intellectual property that is the engine
    behind their products.
        I look forward to your questions, and thank you very much
    for this hearing.
        [The prepared statement of Mr. Reed follows:]

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        Mr. Latta. Well, thank you very much. And as the gentlelady
    from California said to me, you did your homework on us. Thank
    you very much for your testimony today.
        And, Mr. Garfield, if I could start my questions with you.
    How do the restrictions on cross-border data flows not only
    impact industries like yours in the technology sector but
    others like manufacturing, retail, energy, and healthcare?
        Mr. Garfield. Thank you for the question. As all of the
    witnesses have shared, cross-border data flows, digital trade,
    is a broad economic issue. And so whether you are in farming or
    pharmaceuticals, you rely on cross-border data flows for your
    companies to function.
        Moreover, it is no longer a big company versus small
    company issue. As Mr. Reed pointed out, there are small
    companies in all of your districts that rely on this. And so it
    is, in fact, in our economic interest to make sure that there
    aren't restrictions that limit the growth of those companies.
        Mr. Latta. Thank you.
        Ms. Espinel, can you discuss how big data cloud computing,
    artificial intelligence, and other emerging technologies like
    blockchain are changing how business is done, and why cross-
    border data flows are important for these disruptive
    technologies and future innovation?
        Ms. Espinel. I would be happy to. So artificial
    intelligence, by its nature, typically demands large amounts of
    data in order to learn from that data and help whoever is using
    it, whether it is a doctor or a farmer or a manufacturer, be
    able to make better decisions based on that data. Artificial
    intelligence, in most circumstances, doesn't really work unless
    there is a large amount of data. And if you are trying to
    discern patterns or the best outcome, having as much data from
    as many places in the world is very helpful. And I will give a
    specific example of that.
        But first you mentioned data analytics. Data analytics is
    often a little bit like looking for a needle in a haystack. So
    you have, typically, very large, unstructured datasets. And
    what data analytics is letting you do is discern meaningful
    patterns that will then, again, help you make better decisions
    that would be virtually impossible, or literally impossible,
    for human beings to do on their own. But artificial
    intelligence, data analytics, are two examples of things that
    really don't work, unless you have very large amounts of data
    and the computing power to be able to process and analyze it
    coming from various places around the world.
        To make that a little bit more concrete, I would turn to
    agriculture as one of the many, many, many examples of sectors
    that are using it. So many farms now have sensors in the soil.
    Those sensors, among other things, are determining the levels
    of moisture that are in the soils. And farmers can take the
    data that they are getting from the sensors that they are
    planting in their own farms and they can compare it to
    historical weather patterns around the world. And they can then
    use that to make decisions about when is the best time to
    plant, how best to irrigate, when is the best time to harvest.
    Their ability to do that is totally dependent on the ability to
    gather historical data on weather patterns across the world. It
    doesn't work, it doesn't give them the same advantage, unless
    they have the ability to do that.
        I will mention one other example, which I think is very
    much on people's minds today, which is cybersecurity.
    Cybersecurity and companies' ability to be able to protect
    themselves from threats is--I am trying not to be overly
    superlative because that is not in my nature. But it is
    incredibly enhanced, shall we say, by the ability to be able to
    detect patterns of threat that are moving around the world in
    realtime. And you cannot do that unless you have access to the
    data from around the world.
        It also allows companies internally to be able to look at
    their network analytics and how they are using technology
    inside their own companies, and then, again, compare that to
    threat data that they are collecting from around the world.
    That is, again, quite literally not possible, unless you have
    the ability to collect data from around the world and to do it
    in realtime, which means you need to be able to do it with as
    little friction as possible.
        I think myself and every member of this panel could give
    you examples in manufacturing and agriculture and healthcare
    and financial services. So I will yield back my time to others
    if they want to. But the examples are plentiful. And I think
    what is really exciting is that, as plentiful as they are, we
    are also clearly at the beginning of what is possible. We talk
    a lot about data revolution and how that is transforming
    business and transforming the economy. But we sometimes forget
    that that itself is very nascent, and I think the advances that
    we are going to see over the next 5, 10, 20 years are going to
    dwarf the advances that we have already seen so far, as long as
    the ability to transfer data across borders remains.
        Mr. Latta. Thank you.
        Mr. Reed, in my remaining time, again, you pointed out a
    lot of the small businesses that you represent. And one of the
    other major concerns for the small business is small, medium
    enterprises that do not have the resources to localize this
    data production or facilities in a country abroad. How do they
    go about it?
        Mr. Reed. Well, I think as you have heard from all of us,
    the revolution of data often is primarily aided by the concept
    of cloud computing. We all know that the term ``cloud
    computing'' is a bit of a marketing term, but the idea that
    data can be anywhere and everywhere all at the same time is
    absolutely critical to a small business.
        So data localization laws that go into effect in other
    parts of the world, which limit two aspects: One is data
    localization laws that say any data collected on a citizen of
    that country must be on a server and only be on a server in
    that country. That is terrible. It is almost impossible to grow
    in that kind of an environment as an American company.
        And the second is one that you have heard all of us talk
    about, is the future of what this can do to improve lives. Now,
    imagine that I can't take that data out or I can't use it. I
    can't bring it back to the United States to analyze it. I have
    to set up a whole series of different cybersecurity mechanisms
    based on the state or national laws in those other countries.
    And all of a sudden, if I am a small business, and I am looking
    in my pocketbook and thinking, do I hire a developer to work on
    a product here in the states or do I roll the dice and spend a
    fortune to do something in a country where I don't speak the
    language, I no longer can depend on the cloud, and I no longer
    have the resources in place to grow, then they are going to opt
    out of that global opportunity. And when they opt out of the
    global opportunity, they opt out of creating more jobs here
    domestically.
        Mr. Latta. Well, thank you very much. And my time has
    expired.
        And I would like to recognize the gentlelady from
    California for 5 minutes.
        Ms. Matsui. Thank you very much, Mr. Chairman. And thank
    you very much for calling this very important hearing today.
    And I want to thank the witnesses for joining us today. This
    has been a very interesting discussion.
        Dr. Daskal, it is clear that while many data flow policies
    across the world are blatantly protectionist, countries also
    have real privacy issues to address. How can we distinguish
    between policies that are purely protectionist and those that
    address a legitimate need.?
        Ms. Daskal. So thank you, and thank you for the question.
        As I said in my testimony, I think that the factors
    motivating data localization are multiple, and it is not always
    possible to parse out what is the motivating factor. And it
    highlights, I think, the need to work on the various different
    areas that identify both dealing with trade policy and concerns
    about the digital efforts to be protectionist.
        At the same time, there are a number of data localization
    mandates and data localization rules that derive from concerns
    about U.S. privacy protections, both consumer privacy
    protections and also concerns about the scope of U.S.-foreign
    intelligence surveillance. And addressing those, I think, is
    also critical, particularly with respect to preserving the flow
    of data from the EU to the United States.
        As we have talked about, the Safe Harbor Framework that was
    in place was struck down primarily because of concerns about
    the scope of foreign intelligence surveillance. And there are
    now a number of court cases, including one that was just
    referred back to the European Court of Justice, that raises
    those same set of concerns based on a record and a finding by
    the Irish High Court that said we have a lot of concerns about
    the scope of U.S.-borne intelligence surveillance and the
    sufficiency of remedies for EU citizens whose data is
    collected.
        Ms. Matsui. OK. Mr. Garfield, in your testimony, you say
    that even when governments have the right motivations, like
    protecting public safety and privacy, they often pursue the
    wrong policies that result in data flow barriers. What do you
    see as the right privacy and public safety policies that will
    not impede data flows?
        Mr. Garfield. I think a part of what is needed here is
    actually U.S. leadership in bringing the world along in
    developing definitions. And so I could sit here today and give
    you my sense of what the appropriate data security or privacy
    regime should look like. But I think the U.S. has an
    opportunity to build on the Privacy Shield in a way that is
    globally necessary and encouraging. And so that is what I would
    actually encourage.
        Ms. Matsui. OK.
        Mr. Garfield. It is bilateral in the sense that it is with
    the EU and all of the countries of the EU. But we have an
    opportunity to build upon that with the rest of the world. And
    the way that data moves today, it is absolutely necessary to do
    that on a global basis.
        Ms. Matsui. All right. OK.
        Just yesterday, the President suggested he could support
    breaking up NAFTA into separate, bilateral trade agreements.
        Dr. Daskal, do you think breaking up NAFTA or other
    multilateral agreements will have any impact on our efforts to
    ensure the global-free flow of data? If so, how?
        Ms. Daskal. So I would be concerned about an effort to
    break up NAFTA. I think we have heard from other panelists the
    importance of NAFTA and the importance of using NAFTA as an
    opportunity to promote a digital-free trade agenda. And I hope
    that the administration follows the recommendations of all of
    those who support that quite strongly.
        Ms. Matsui. OK. And I have been very concerned about the
    forced transfer of technology as a condition for foreign market
    access, especially as it pertains to encryption and
    intellectual property. Can any of our witnesses provide
    examples of these forced transfers? And do you have any
    suggestions of how we might address this issue? Any of you?
        All of you can comment.
        Ms. Espinel. So, yes, I think there are specific countries
    around the world where we have seen either our members not be
    able to access the market or have their access severely
    limited. And among those are Russia, Indonesia, Brazil, China,
    Vietnam. Mr. Garfield noted many of these as well. And we have
    concerns that the litigation that Ms. Daskal and I believe
    other of the panelists have referred to several times, the
    litigation that is happening right now in the European Union,
    is also going to end up limiting data flows between the United
    States and Europe. So this is a live issue in many parts of the
    world.
        I think in terms of what can be done, a part of that is
    Congress continuing to encourage the administration to tackle
    this issue head-on. I do think, at least in our interactions
    with the Department of Commerce and with USTR, they realize how
    important digital trade is to the United States and to the
    global economy, but it is not an easy issue. So I think
    continuing to make clear to them that this is also a priority
    issue for this committee is very important.
        We live in a world right now where we don't have any
    international consensus on what the right set of rules would
    be. You have heard many of us talk about NAFTA. A big part of
    the reason that we are interested in NAFTA is because it gives
    an opportunity to start setting that precedent, and that is
    really where we need to go to collectively. We need to have, at
    least among the major economies, an international consensus on
    what the right sets of rules around free movement of data
    should be. And that does not exist right now.
        Mr. Garfield. If I may just suggest one recent report. The
    Information Technology and Innovation Foundation is doing an
    annual report on cross-border data flows and the limitations to
    that. In that report, they identified 37 countries that now
    have these principles in place or limitations in place. And so
    we can make that report available for the committee as well.
        Ms. Matsui. OK. Well, thank you very much.
        And Mr. Chairman has been very generous with me. So I need
    to yield back. Thank you.
        Mr. Latta. Well, thank you very much. The gentlelady yields
    back.
        The chair now recognizes the gentleman from Mississippi,
    the vice chairman of the subcommittee, for 5 minutes.
        Mr. Harper. Thank you, Mr. Chairman. And thanks to each of
    you for being here.
        It is mind boggling when you think of where we are today
    and with the opportunities that we have. And think back 10
    years ago, I don't know that we could have envisioned we would
    be on the--with such opportunities. And the challenges really
    are opportunities for us.
        And so I want to thank you each. You bring so much
    expertise to the table to help us as we go forward to make sure
    that we do things that do improve people's lives, that we do
    things that don't block that cross-border flow. And we want to
    make sure that we get it right. And, certainly, there are those
    opportunities we are going to grasp and go forward.
        So, Ms. Espinel, you mentioned in your testimony that you
    indicated how digital trade can improve lives. Explain to me
    how that works. When I go back to my home State of Mississippi,
    what should I tell them?
        Ms. Espinel. So I think Mississippi, as we have already
    heard today, is a leader in healthcare and in personalized
    healthcare. And I think that is an area that is well worth
    emphasizing. So I am going to tell a story that is a little bit
    personal to me because it is borne out from my personal
    experience, actually in a couple of areas, where artificial
    intelligence and the ability to assess data from around the
    world is making an impact.
        The first I will start with is Alzheimer's. So my mother
    suffers from Alzheimer's. Researchers in the United States and
    Japan and Europe are now working together using technology
    developed by IBM Watson to use the medical patterns of
    Alzheimer's patients from around the world to hopefully be able
    to find, if not a treatment to Alzheimer's, increase risk
    factors for Alzheimer's. And that is an issue that is personal
    to my family. I know it is an issue to many families around the
    world. I think anything we can do to advance there is well
    worth it. And, again, that is an area where it is, if you are
    restricted to your ability to use data from a specific
    population set, that is going to make it much, much slower to
    be able to see the kind of advances that we would like.
        Another example that also resonates with me because of my
    own personal experience relates to doctors in Canada. So
    doctors in Canada started monitoring newborn babies,
    prematurely newborn babies for signs of risk. And one of the
    things that they found is that right before a premature baby
    has a crash, goes into a serious risk incident, their vital
    signs stabilize, which is actually sort of intuitively very
    strange, right. So, in fact, the medical practice up to that
    point had been if they saw the vital signs stabilize, they
    would lessen the monitoring of that particular baby because the
    assumption was that the baby was going into recovery. What they
    actually found using cross-border data flows and data
    analytics, was that, in fact, that is a risk factor for a baby
    going into crisis. And that has completely changed the
    treatment and the monitoring of premature babies that are in
    the NICU and has saved lives.
        As a mother who, happily for me, very briefly had a child
    in the NICU, that is an example that resonates----
        Mr. Harper. Sure.
        Ms. Espinel [continuing]. With me very strongly. But it is
    another example of an advance that would have been literally
    impossible without the ability for doctors to be able to
    compare datasets from around the world.
        Mr. Harper. That is great.
        Ms. Espinel. So Mississippi is a leader in healthcare.
    There are so many great examples there, and I think anything
    that we can do to try to keep the data within--while respecting
    privacy, to keep medical data flowing around the world to try
    to help researchers and doctors treat their patients is
    tremendous.
        Mr. Harper. Thank you very much.
        Mr. Reed, we discussed a few moments before the hearing
    began, you know, University of Mississippi Medical Center
    selected last week as a Telehealth Center of Excellence. And
    that just didn't happen because they went around to pick that.
    Tell us how following up on that has helped.
        Mr. Reed. The reality is for University of Mississippi
    Medical Center, and I think there is something important. The
    ability to save lives is a critical aspect of this. But also,
    let's not undervalue the fact that the University of
    Mississippi is also looking for the students that are coming
    out of there, and the school itself, to create jobs, to create
    opportunities, and to break the place that they are now and
    find something that they can do. They can hire 10 people, 20
    people, 30 people. And you start to look at the fact that, from
    UMMC, when they are looking to do spinoffs and those students
    are looking to build the next product that comes out of there,
    they are going to rely on data from all across the world to
    find that next solution. The example I gave you, if I have got
    to figure out what drug works better on this group of people
    versus this group of people, then I need the data to do so.
        And so it is important that we find a way to solve the
    health problems that we have raised, but let's not undervalue
    the fact that part of what we are also doing is looking to
    promote entrepreneurship. And entrepreneurship comes from
    information. All of us in the business case, we talk about
    asymmetry, information asymmetry. We lose out when we have with
    information asymmetry. The more information they have, the
    better the product they can make, the more jobs that they can
    build. And I think we should remember that part of this is
    using data to spur entrepreneurship as well as life saving.
        Mr. Harper. Great. Thank you, Mr. Reed.
        My time has expired, Mr. Chairman.
        Mr. Latta. Well, thank you.
        The chair recognizes the gentleman from Vermont for 5
    minutes.
        Mr. Welch. Thank you very much. I thank the panel of
    witnesses. We are on pretty good bipartisan terms here. And the
    reason is because what we are talking about, the data flow, is
    so important to the economy, independent of where you are from
    or even what your enterprise is.
        And the two issues that I guess I want to ask about are,
    number one, what are some of the issues we have to deal with
    with respect to European actions that are intended either to
    protect privacy as they see it, somewhat different than ours,
    and the collateral consequences of the Snowden incident? And,
    number two, some of the anticompetitive steps they may take
    disguised as privacy steps for their people.
        So I will start with you, Ms. Espinel. Can you address
    that?
        Ms. Espinel. So I will mention at least two things. One is
    there is a regulation called the GDPR that is in the process of
    being implemented throughout Europe. And part of what the GDPR
    does is puts into place stronger privacy rules.
        I will say, based on the experience at least of my
    companies, what we have found is, in terms of implementing
    that, U.S. companies are often far ahead of where the European
    companies are. So I think our companies, and certainly my
    members and their commitment to privacy, is unparalleled.
        However, I think we do have concerns about some potential
    regulations or litigation challenges that are happening in
    Europe. So two I will highlight is there is an e-privacy
    regulation that is being discussed in Europe right now, and we
    do have concerns that that is going to make it very difficult
    to operate in Europe, while not actually advancing the cause of
    privacy very much. So that is one that I would flag.
        The second I would flag is one that we have mentioned a
    couple of times on the panel, but I think it bears repeating
    because the threat of it is so serious. While the Privacy
    Shield is in place, as you know--and we were happy to see the
    United States and Europe come to an agreement and conclusion,
    and we are happy that it remains in place--the Privacy Shield
    is only one of the mechanisms that companies use for moving
    data back and forth and around the world. And the other
    challenge, there are other mechanisms called standard
    contractual clauses that are right now also being challenged in
    Europe, as Ms. Daskal referred to. Those have been very
    recently referred up to the European Court of Justice.
    Potentially, the impact of those being overturned could be even
    broader than the impact when the Safe Harbor was revoked. So we
    are watching that with great interest. And I think that goes to
    the discussion that we need to have collectively between the
    United States and Europe about what a long-term solution is.
        Mr. Welch. OK. Thank you.
        Go ahead, Mr. Reed, and then Ms. Daskal.
        Mr. Reed. I think that one of the key elements that is on
    the forefront is finding a way to solve the question about law
    enforcement access. Right now, the International Communications
    Privacy Act, H.R. 3718, is going to be critical. Because we are
    staring right in the face of a decision by a court that will
    essentially say that U.S. law enforcement can take data from
    anywhere, regardless on who it is on, regardless of what
    country it is stored on. And while that may be the right
    decision, the impact that that will have on our ability to do
    cross-border data flow with Europe will be significant. Because
    if we say that, then you have to assume that the European
    nations are going to say the same thing.
        And then, without a comity agreement, without some kind of
    ability for companies to adequately provide for the security of
    that data, you are facing a world where U.S. companies are
    either going to have to obey the law of the United States and
    find themselves in violation of laws overseas or violate the
    law in the United States to serve their European customers. And
    nothing will do as much damage to our positive relationship
    with Europe than the idea that I can no longer do business
    there without breaking a law in one place instead of the other.
        Mr. Welch. Ms. Daskal, I have only got about a minute, a
    little less. Thank you.
        Ms. Daskal. So I fully agree that the issue of law
    enforcement access to data across borders is important. And the
    converse of what Mr. Reed was just talking about is foreign
    governments' inability to access emails, communications,
    content, that happens to be U.S. held, even when they are
    investigating a local crime involving a local perpetrator and a
    local victim based on kind of outmoded rules from the 1980's
    Stored Communications Act.
        As I said in my testimony, first the Obama administration,
    now again the Trump administration, have sent up legislation to
    the Hill that would begin to ease those restrictions. And I
    think it is something that Congress should take up to at least
    alleviate one of the pressures in favor of data localization.
        Mr. Garfield. If I may, very quickly.
        All of that is absolutely correct, but we are in an
    untenable position if the United States has to continually
    change its laws in order to respond to shifting court rules and
    dynamic in Europe. And so you asked about solutions. I think
    what is absolutely necessary here is American leadership in
    working with the rest of the world, not just Europe, to come up
    with rules of the road in this area. Because in the same way
    that the Privacy Shield can now be undermined by Schrems II, it
    will be Schrems III and IV a year from now.
        Mr. Welch. Yes.
        Mr. Garfield. And so that is why our leadership in
    developing rules of the road in this area is so critically
    important.
        Mr. Welch. Thank you. I thank the panel.
        Thank you, Mr. Chairman.
        Mr. Latta. Thank you very much. The gentleman's time has
    expired.
        And the chair now recognizes the gentleman from Kentucky
    for 5--I am sorry. Mr. Lance is here. I am sorry. The gentleman
    from New Jersey for 5 minutes.
        Mr. Lance. Thank you very much. Kentucky is a great State,
    however, and very beautiful.
        I want to thank the panel for joining us today to discuss
    this important topic.
        The congressional district I serve is heavily involved in
    this field. Almost 60,000 constituents are employed in the
    high-tech sector. That is nearly 2 1A\1/2\ times greater than
    the average in a congressional district which, as I understand
    it, is 24,000. It is a driving force in our local economy and
    will continue to be as business and society become ever more
    reliant on advanced technologies.
        Ms. Espinel, can you please explain how the free flow of
    data around the world supports emerging technology in machine
    learning and algorithms, for example, and the impact it has on
    businesses today?
        Ms. Espinel. I would be happy to.
        So machine learning is one aspect of artificial
    intelligence, and algorithms are the parameters or rules that
    let all kinds of artificial intelligence work. But artificial
    intelligence and the ability to be able to discern patterns and
    then help human beings make better decisions doesn't work in
    most circumstances unless you have fairly massive amounts of
    data. If you are a farmer looking at it trying to understand
    what is likely to happen in terms of weather conditions and,
    therefore, how you should be planting your fields and when you
    should be harvesting, if you are a manufacturer trying to
    understand what the consumer demand is around the world, if you
    are in cybersecurity and trying to track threats as they move
    across the world very rapidly, you can use artificial
    intelligence and data analytics to do a much, much better job
    of assessing what the outcomes will be in making decisions, but
    you can't unless you have large amounts of data to be able to
    do the data analytics and the artificial intelligence.
        And in all of those areas I just mentioned, having
    international data is going to be very important. If you only
    have the ability to assess the weather patterns that are
    hanging right over the State of New Jersey or even just the
    United States, that is going to very much limit your ability to
    determine what is actually going to happen in terms of weather.
        At the same time, if you are a manufacturer hoping to
    expand overseas and you can only get customer feedback from
    inside the United States, that is going to limit your ability
    to be able to best serve the largest amount of customers that
    you want to have. In cybersecurity, if you are limited to
    information that is in the United States, it will be virtually
    impossible to be able to detect patterns, because they move
    around the world so quickly.
        So artificial intelligence depends on large amounts of
    data. But in many, many areas it also depends on having
    datasets that are coming from around the world with as little
    friction as possible in order to make them useful.
        Mr. Lance. Thank you very much.
        Mr. Reed, are there any digital trade issues that are
    important to your members, small tech companies, that may be
    different from the priorities of larger companies?
        Mr. Reed. I think the issue of scale generally ends up
    being one of scarce resources. The reality is everyone here at
    this table has the same concerns when it comes to cross-border
    data flow. But let's consider it from a company in your
    district who has got, let's say, 20 employees. When they are
    looking at their CapEx expenditure, how much can they spend to
    build a data center or to source something overseas? If they
    have got 20 employees, I have got to decide do I hire the 21st
    employee to deal with a contract I have for a company in New
    Jersey or do I try to spend that money to build a data center
    overseas?
        So our primary issue that you are going to see the
    differentiation here is, for the larger companies, it is a cost
    but doable. For our folks, it becomes a barrier in which they
    cannot pass. And what becomes really disappointing about that
    outcome is, oftentimes, our companies are the one that drive
    forward the innovation. We get acquired by the big guys. We
    look forward to that opportunity to either beat them in the
    marketplace or get acquired and build another better product.
        So the real differences that you are going to see in this
    space are where they say it is a cost, we say we can't go. And
    there is where we end up with the more significant painful and,
    frankly, anti-innovation damage that is done by trade barriers.
        Mr. Lance. Thank you.
        Would anyone else on the panel like to comment?
        Yes, Mr. Garfield.
        Mr. Garfield. Well, I was going to give a concrete example.
    So we met with a company 2 weeks ago that is 4,000 people. And
    in order to comply with GDPR, they are putting 34 engineers
    against it. So GDPR is moving forward for legitimate reasons.
    But it speaks to the point that Mr. Reed made which is, for
    some companies, they can afford to assign 34 engineers. For
    others, they simply can't and so won't operate.
        Mr. Lance. Thank you. My time has expired.
        Thank you, Mr. Chairman.
        Mr. Latta. Thank you very much. The gentleman yields back.
        And now the chair recognizes the gentleman from Kentucky
    for 5 minutes.
        Mr. Guthrie. Too bad he went first. He asked some of my
    questions, so I appreciate it very much.
        But, no, it has actually been a fascinating panel, and you
    have all done such an excellent job. The things that I was
    going to ask you, really--I was going to talk about NAFTA. I
    wasn't going to say Mississippi. I was going to say Kentucky.
    But the same question that seems to be the same kind of answer,
    so I appreciate it.
        I guess it is probably about 20 years now, but it was twin
    brothers who were in high school when they founded Hintcents,
    and they now have a very successful company, doing business in
    Bowling Green, so it is a great, great business.
        I guess the one thing, there was a European Centre for
    International Political Economy that examined the consequences
    of GDP in countries that have cross-border restrictions, and
    under the sum of it is for safety and security, or there are a
    few of what is private. But in doing it for economics it says
    it decreases GDP in these countries that have these cross-
    border restrictions. So why would these countries do that?
        Ms. Espinel. So I would certainly argue that it is not in
    the long-term economic interest of countries to put in data
    localization policies, although I can imagine that some may
    view it as being at least in their short-term economic interest
    because of a view that, if it is harder for U.S. companies to
    be operating inside of their borders, it will allow them to
    boost their domestic industry. I think longterm, that is not
    going to be the case. And I think it also is a real harm to
    their companies.
        One of the things we have been talking about here, but I
    want to emphasize the point is, some of us are larger tech
    companies, some of us are smaller tech companies. What is
    really important here, I think, is the customers of our
    companies. And the customers of our companies are in every
    industry sector that exists. And that is true in the United
    States. That is true overseas as well.
        So when governments put data localization policies in
    place, not only are they, in my view, hurting their own long-
    term economic interests in terms of building their tech
    industry, they are hurting the immediate economic interests of
    companies across their healthcare and manufacturing,
    transportation, other sectors, because they are denying them
    access to the latest innovation.
        Mr. Garfield. The other thing is that businesses are so
    integrated today, both large and small, domestic and
    international; we represent companies all over the world. And
    they are codependent. And so when you put these rules in place,
    you do damage to your local businesses and customers.
        Mr. Guthrie. We do a lot of stuff here when the States are
    doing, in the Commerce Clause, we have to kind of look at our
    role.
        So I am going to go off the topic a minute; it is why you
    are here, Mr. Garfield. I met this morning with Secretary
    Acosta, Labor Secretary. Everywhere I go, people are talking
    about jobs, the right skills, the right skills for jobs. People
    are hiring, but people don't have the skills to move forward.
    And I am of a manufacturing background, so a lot of repetitive
    work has gone to automation. And some of your companies are
    involved in that, obviously. But as it goes to automation, the
    requirement to have somebody to be able to maintain that
    automation has raised, instead of being a $14, $15 person to
    the $25, $30, $35 person an hour.
        So your member companies are kind of driving this. What
    things are you guys doing----
        Mr. Garfield. Yes.
        Mr. Guthrie [continuing]. To help develop the workforce?
    And what can Congress do to help, is the question?
        Mr. Garfield. It is completely on topic. I think one of the
    things you can do is what you are doing right now. So one of
    the examples you mentioned, I think banking, which is when ATMs
    came into the marketplace, most people assumed that there would
    be fewer people needed in banks. Well, the opposite is true. We
    have more ATMs around the world, but we have more people
    working in banks because there are more bank branches.
        Part of the disconnect, there are 6 million open jobs in
    the country today and about 7 million people looking for work,
    that the challenge is that the skills of the people looking to
    work don't always match up with the jobs that exist. And so one
    of the things that we are putting a lot of energy behind,
    actually collectively, is making sure that we are reskilling
    the workforce such that those skills do align.
        I think where Congress can help is by putting resources
    behind those efforts, but making sure that they are well
    coordinated so that there is closer connection between the
    private sector and the public sector. The job training programs
    should be rooted in the needs of the world today, not the needs
    of the world 20 years ago.
        Mr. Guthrie. Yes. It is also localized. I am on another
    committee that did the Workforce Investment and Innovation Act,
    WIOA, whatever they all stand for. And one of our main premises
    of changing it was make sure there was a business majority on
    the local boards and it is localized, because even though it is
    a global economy, there are certain things that happen in
    certain--people--they are clusters, and people become experts
    in their clusters.
        Ms. Espinel. And if could just add to that briefly. I think
    the issue of reskilling and making sure that young people and
    people on their career paths have the skills that we need is a
    very important one, and I would echo everything that Dean just
    said. I think we also need to do a better job in terms of
    matching. So where people do have the skills and there is
    employee demand for those, making sure that the employees that
    have those needs are in touch with the people that have those
    skills. And I know there are training programs now that are
    being very intentional about making sure that, once you go
    through the training programs, there is also a clear path into
    a company that has a job. I think that is a very important part
    that we need to make sure is infused throughout our training
    programs to the extent possible.
        I think this is a great area, though, for the industry,
    which is very focused on this and for Congress to be working
    together.
        Mr. Reed. I know we are out of time, but I think one of the
    issues that I want to differentiate a little bit from what we
    just discussed is, even though we are the software industry and
    we know what the salary is, I come from a background of working
    with machinery as well. And one of the things that is
    fascinating to me is not everybody needs to be a programmer. If
    you were in the manufacturing side of the world. Well, you know
    what a toolmaker is, you know what a patternmaker is. The same
    skill set that required you to be good with a file and good
    doing patternmaking, you transfer that same knowledge of a
    three-dimensional shape to a CAD program.
        So when somebody says, well, I am a patternmaker, I don't
    know how to live in this precision manufacturing world, my
    sense is that is a failure on us, because the skill set, the
    idea, how does this fit together, where does this fit in the
    machinery, how do I make a better widget that goes better with
    this product, it is exactly the same as holding a file in one
    hand and a piece of metal in another or just putting the
    keyboard in between. And that, to a certain degree, is
    something we need to do to change the language about how we
    talk about reskilling and that we look at it from the
    standpoint of tools we are making to accomplish the same job
    are different, but the outcome is the same.
        Mr. Guthrie. Thank you. My time has expired.
        Mr. Latta. Well, thank you very much.
        And the chair now recognizes the gentlelady from California
    for 5 minutes.
        Mrs. Walters. Thank you, Mr. Chairman.
        Mr. Garfield, you state that data localization is the
    primary type of digital trade barrier. Can you describe which
    regions or countries have proposed or enacted nontariff
    measures like data localization or transfer of data
    restrictions?
        Mr. Garfield. Yes, certainly. It is actually a long and
    growing list, unfortunately, so--there is a recent report from
    the Information Technology and Innovation Foundation that
    identifies 37 different countries. Their market is certainly
    like China, Indonesia, Vietnam, a number of South American
    markets that are now doing the same that is highly problematic.
    The thing that we have noted is that the motivations may be
    distinct in some of those markets. The drivers in Europe, for
    example, may be rooted in human rights and constitutional
    principles. But the end result is pernicious both for their
    local market and for global companies. And so there is a better
    approach to achieving the goals they have in mind.
        Mrs. Walters. OK. Thanks. And have you recognized patterns
    in which certain regions or similarly situated countries
    justify nontariff measures based on a particular reasoning? For
    example, do you recognize that developing countries justify
    these barriers based on protectionism or whether geopolitical
    rivals to the U.S. justify their barriers on national security?
        Mr. Garfield. I think the pattern that we see most often is
    that national security is the preeminent concern that is
    identified and articulated. The irony of it all is that
    national security is often undermined by localization
    requirements, because you are not getting patterns, as Victoria
    has pointed out or Mr. Reed has pointed out, from around the
    world. You are also closing yourself off from access to the
    best technologies that would actually support security.
        And so part of this is addressing the legitimate security
    concerns while making sure they are not acting in a
    protectionist fashion.
        Mrs. Walters. OK. The next question is for the entire
    panel. The testimony we have received for this hearing makes
    clear that the flow of data is really about the flow of ideas.
    Recently, some have advocated for the United States to
    implement a more protectionist trade policy. Are foreign
    countries reacting to this debate by moving toward additional
    policies to restrict data flows?
        Ms. Espinel. Well, I will start because, actually, I think
    that is a nice follow-on from the question you just asked. And
    Dean talked about patterns. And I would agree that I think
    national security concerns is a pattern that we are seeing
    governments raise around the world. But another pattern that we
    are seeing is that governments that are not the United States
    are involved in trade or other bilateral discussions with
    governments around the world, and they are encouraging their
    vision of data or, in some cases, their lack of vision on data.
    And that is a troubling trend. And that is one of the reasons I
    think we and others have encouraged the United States to
    continue to show leadership on this issue.
        The United States is using its trade negotiations, such as
    NAFTA, as sort of an immediate example or other bilateral
    discussions it is having to push for cross-border data flows.
    That is going to be very helpful in no small part because other
    governments are out saying that trade agreements or bilateral
    discussions either should not have rules on data flows or
    should have rules that would localize data. So I think that is
    an important aspect of this.
        Mr. Garfield. It is not just theoretical, not to rehash
    TPP. But the Chinese model for data flows is almost 180 degree
    from ours. But their influence in that region post-TPP is
    pronounced. I have spent a lot of time there in the last few
    months traveling between Japan, South Korea, and other markets
    in the region, and you can see the impact of that, particularly
    around data flows.
        Ms. Espinel. And to give another example, the Japanese and
    the European Union are engaged in trade discussions right now.
    The Japanese are aligned with the United States, and they have
    been big promoters of cross-border data flows. Obviously,
    global innovation is a big part of their economy as well. But
    it looks like they are going to come to an agreement with the
    European Union that is going to leave this entire area out,
    rather than having rules on it as TPP and as we hope NAFTA
    would. So I think that is a troubling trend that we are seeing
    as well.
        Mr. Reed. And I will pile on. We just spent time dealing
    with Indonesia at, of all things, ITU, where there is an effort
    underway to essentially give the ITU power to control what is
    called over the top, which is essentially everything on the
    internet, through the ITU. And part of that is a move to
    restrict the success of the United States and the United States
    companies around data and get a lot of that under the control
    of the ITU and ultimately the United Nations.
        I am sending staff around the world to deal with these
    exact issues from a small business perspective. So it is
    everywhere, it is pernicious. And ultimately, we are going to
    have to address it quickly.
        Ms. Daskal. And I would just add briefly, in addition to
    the protectionism concerns and the security motivating factors,
    there are, as we have talked about a little bit today, concerns
    about privacy, particularly amongst the EU. And there are steps
    that the United States can take both to take steps to improve
    its privacy protections both in the foreign intelligence
    surveillance regime and in the consumer privacy protection
    regime. And as Mr. Garfield said, also to play a leadership
    role in setting new norms and explaining better what the United
    States already does well.
        Mr. Reed. And I would be remiss if I didn't thank you for
    your current cosponsorship of H.R. 3718, which is legislation
    that helps to address some of that, the International
    Communications Privacy Act. So thank you.
        Mrs. Walters. Thank you. And I am out of time. Thank you
    very much.
        Mr. Latta. Thank you. The gentlelady yields back.
        The chair recognizes the gentleman from Florida for 5
    minutes.
        Mr. Bilirakis. Thank you very much. I appreciate it, Mr.
    Chairman. And I apologize for being late. We had a hearing and
    a markup in the VA Committee.
        But I want to ask the question of Mr. Garfield. Each day,
    my constituents are utilizing internet-enabled tools to access
    customers abroad in ways impossible a decade ago, of course.
    American industries from manufacturing tools to financial
    services to agriculture are increasingly relying on the
    internet for their current and future global competitiveness,
    as you know. Unfortunately, U.S. internet services continue to
    face a number of market access and regulatory barriers.
        As governments continue to assert a heavy hand on U.S.
    internet services, how would you use trade policies to stop
    other countries from blocking or discriminating against the
    U.S. services and ensure that the U.S. continues to lead the
    world in innovation?
        Mr. Garfield. Thank you for the question. I would do what
    Congress suggested when it passed TPA, which is making sure
    that digital trade, trade promotion, cross-border data flows
    are a priority, and that we put in place mechanisms for holding
    markets accountable. It is not a theoretical issue. The United
    States is in the process of updating NAFTA and has said that
    they are on the path to do the same thing with the Korean trade
    agreement. I think in both instances we have the opportunity to
    ensure that all of the things that you identified that have an
    impact on the ground in Florida are, in fact, addressed.
        Mr. Bilirakis. Thank you. Good answer. I appreciate that.
        Mr. Garfield. I tried.
        Mr. Bilirakis. Ms. Espinel. Is that how you pronounce it?
    Is that right?
        Ms. Espinel. Espinel.
        Mr. Bilirakis. OK. Thank you. I have a question for you. In
    your testimony, you explain how the services and technologies
    provided by your member companies are fundamentally affecting
    the ways in which companies are running their businesses,
    accessing markets, interacting with clients and customers, and
    generally innovating. How can trade agreements be used to help
    advance U.S. standards and best practices in protecting
    innovation and intellectual property like copyright, trade
    secrets, and, of course, patents?
        Ms. Espinel. So one of the things that we have talked about
    a little bit today is the fact that, right now, one of the gaps
    in the international legal system is that there are no rules of
    the road. There is no international consensus on what data
    policy should be. And to me, it feels a little bit like where
    we were in the 1990s with intellectual property, investment,
    and services, where there were also no international rules of
    the road, or at least no trade international rules of the road.
    And at the time, the United States stepped up.
        And as part of the negotiations that led to the
    establishment of the World Trade Organization, they said
    intellectual property, investment, services clearly--already
    important parts of the U.S. economy, clearly going to be even
    more important to the U.S. economy and the global economy. We
    need to have international trade rules. There need to be some
    internationally recognized parameters on how intellectual
    property, investment, and services should work cross border.
    And the U.S. pushed hard for that to happen. And I am very
    confident, without U.S. leadership, it would not have happened.
    But it did, and eventually, all of the members of the WTO
    countries agree that there should be international rules on
    intellectual property, investment, and services.
        It feels to me like we are at that moment again for data.
    Data is also new. Although there has been so much progress and
    advance already, this is still a new industry. And the way it
    is impacting industry sectors across the economy is still
    relatively new. And that is part of the reason why there are no
    international rules on it yet.
        And what I would ask Congress to do is to encourage the
    administration to look for places, NAFTA as an example, where
    we can start to set a precedent for international rules on
    data. I think it is clear that this is going to continue to be
    a very important part of the U.S. economy in the global
    economy, like IP investment and services. I am confident it is
    important so the economy will only grow over the next decade or
    so. And so we are going to need to have those rules. And I very
    much hope that this administration takes that mantle up and
    continues to work with countries around the world to try to set
    those rules.
        As a former trade negotiator, that is not going to be easy
    discussion. That is not going to be a few days of discussions
    with other countries. It is a cutting edge issue, so it is
    going to be difficult. But it is so important, not just to our
    economy, but to the economy of our trading partners around the
    world. But I think it is very important.
        And so whether it is NAFTA, whether it is Korea, whether it
    is discussions with the European Union and the U.K., whether it
    is discussions with Japan, whether it is discussions in
    multilateral venues, like the GS and the G8 and the G20, I
    would encourage the administration to be looking for every
    opportunity it can to start laying the ground rules for
    international trade rules on data.
        Mr. Bilirakis. All right. Very good. Thank you very much.
        I yield back, Mr. Chairman.
        Mr. Latta. The gentleman yields back.
        And the chair recognizes the gentleman from Pennsylvania
    for 5 minutes.
        Mr. Costello. Thank you, Mr. Chairman.
        As we all know, technological innovation shapes every State
    and region of the country. I am very proud in my southeastern
    Pennsylvania and congressional district, over 800 million high-
    tech manufacturing exports, over 200 million IT services
    exports, 42,000 high-tech sector workers, 30,000 STEM workers,
    over 17,000 computer and math workers, and over 12,000 highly
    educated immigrant workers.
        My question, Mr. Garfield--and I appreciated your mention
    in your written testimony of several lead innovators from
    diverse industries and the many different ways they rely on
    cross-border data transmission as part of their core business
    function.
        Merck, which employs several thousand just east of my
    district, but many live in my district, they have been able to
    deliver medical advancements more efficiently as the technology
    platforms they rely upon have grown increasingly global and
    sophisticated. I am asking you to elaborate on how removing
    barriers to cross-border data flows has the potential to
    increase business efficiency for medical innovators, create
    jobs, expedite the delivery of lifesaving therapies, and
    ultimately, lower costs for patient end users. In essence, how
    does removing these barriers translate into a higher quality of
    life both here and also in countries engaging in freer digital
    trade?
        Mr. Garfield. Thank you. Thank you for the question. We
    were just noting that it makes me want to visit Pennsylvania
    just listening to your description of the place.
        Mr. Costello. Come on down.
        Mr. Garfield. So the shortest answer to your question is
    that cross-border data flows allow us to look at patterns where
    we wouldn't know where to pull the information from. And so you
    would never know what insight you are going to get from these
    technologies which leads to greater innovation, greater
    collaboration, greater job creation, greater economic growth,
    and greater development in places like Pennsylvania.
        And so the bottom line is cross-border data flows is really
    the oxygen, if you will, as I said at the beginning, for
    innovation today. And we all know the benefits of innovation
    and the broad-based impact that it has on economic development
    and growth in places like Pennsylvania, but throughout the
    country.
        Mr. Costello. Yes. And thank you for the answer--a couple
    other questions. But does anyone have anything to add different
    from that? Otherwise, I will move along.
        OK. Next question. Have any studies been conducted on lost
    productivity that results from some of the current nontariff
    barriers to digital trade?
        Ms. Espinel. I don't know one specifically. I know the U.S.
    Commerce Department has estimated that the digital trade is
    worth $250 billion to the U.S. economy. But I am not familiar
    with the study that looks at lost productivity precisely.
        That said, it is clear that cloud computing and data
    analytics and others contribute to productivity. So it is clear
    that it is going to have a negative significant impact. But I
    don't know of a specific study that has looked at that issue.
        Mr. Reed. I am happy to bring you some numbers on that. I
    think the way that we would look at that is the old what
    happens if you put your hand out and you spray paint around it?
    What we look for is countries nearby and regions nearby where
    they haven't seen the productivity growth that you should
    expect.
        It is interesting you bring up Merck, because that is one
    of those where you can really see some impact on lifesaving
    drugs.
        Mr. Costello. I think the committee would certainly
    appreciate any feedback on that question further.
        Mr. Garfield, data localization laws that contribute to the
    restriction of cross-border data flows. You mentioned the U.S.
    should work to establish new norms to remove some of those
    barriers. Two questions real quickly. Some of the nations you
    mentioned, have they demonstrated a willingness to help change
    the international norms? Second, besides formal negotiations,
    what else can be done to help change these international norms?
        Mr. Garfield. The answer to the first is yes. So in Latin
    America, for example, we have seen some progress from private
    sector efforts to push countries away from the direction they
    were heading on restrictions on cross-border data flows. And
    so, yes, there is an opportunity there.
        What more can you do? Or what can the U.S. do? I think, as
    we negotiate trade agreements, emphasizing the importance of
    digital trade and cross-border data flows and building in
    accountability mechanisms is a key part of that. My colleague
    tapped me on the shoulder to say that there is a report from
    ICIP and ITIF that gets into productivity, and we will make
    sure we get that report to you.
        Mr. Costello. Thank you.
        I yield back. Thank you, Mr. Chairman.
        Mr. Latta. The gentleman yields back.
        And seeing no other members seeking to ask questions, I
    would like to thank our witnesses today for appearing before us
    today.
        And before we do conclude, I would like to include the
    following documents be submitted for the record by unanimous
    consent: a letter from Insights Association and a letter from
    Electronic Privacy Information Center.
        [The information appears at the conclusion of the hearing.]
        Mr. Latta. Pursuant to committee rules, remind members that
    they have 10 business days to submit additional questions for
    the record. And I ask that the witnesses submit their responses
    within 10 business days upon receipt of the questions.
        And, without objection, the subcommittee is adjourned.
        [Whereupon, at 11:47 a.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                 Prepared statement of Hon. Frank Pallone, Jr.

        Today's hearing is about the policies of foreign
    governments that affect the free flow of information across
    national boundaries.There is no dispute that the United States
    leads the world in technological innovation. And data
    continually crossing national borders is critical to that
    status.
        Most of us don't spend much time thinking about how data is
    stored, how it moves, or how it affects our daily lives. But in
    our digital society, we rely on the ability of data to move
    quickly and seamlessly. It is essential to American innovation
    and enterprise.
        Businesses of all types and sizes, and in virtually all
    industries, rely on data flows. For example, this near-
    instantaneous data flow happens when you use a credit card in
    another country to buy a sandwich or when you purchase a
    product from a company located overseas online. All sectors,
    including agriculture, mining, and manufacturing, are reliant
    on moving data.
        The free flow of data allows business to flourish both
    domestically and abroad. Unnecessary barriers to these data
    flows affect the American economy and American jobs.
        In recent years, a number of countries have begun to put
    policies in place that may hamper the free flow of information.
    Data localization policies take a number of forms, from
    explicit requirements that data be stored and processed within
    a country's borders to prohibitions on the transfer of personal
    information to countries that do not have adequate levels of
    data protection.
        Governments assert a number of reasons for data
    localization policies. Concerns about law enforcement access to
    individuals' personal information have gotten a lot of
    attention in recent years following the disclosure of the NSA's
    surveillance programs.
        Other factors are also at play-factors like competitiveness
    and antitrust concerns. In addition, national security and law
    enforcement interests have only increased in the wake of recent
    terror attacks all over the world. And some policies may be
    purely protectionist-to attempt to give local companies
    competitive advantage.
        Like most Americans, citizens of other countries are
    troubled by the mass collection of personal information by
    private companies and whether that information is kept secure.
    Massive data breaches-like the Equifax breach, which affects
    British and Canadian citizens in addition to Americans-makes
    people even more nervous about their personal privacy. Enacting
    baseline consumer privacy and data security protections in this
    country can help ease those fears.
        Meanwhile, addressing the other concerns of foreign
    citizens and foreign governments-those based on national
    security or economics-may require a combination of government
    and commercial actions to prevent harmful restrictions on cross
    border data flows.
        I look forward to hearing from our witnesses on this
    important topic. Thank you.
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