[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
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                         




      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                        
                        
                        
                        
                        
                            _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 27-652                 WASHINGTON : 2018      
____________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
  Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001     
                       
                        
                        
                        
                        
                    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:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   
    
    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:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   
    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:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
  
    
    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.
                              ----------    
                              
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]