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Legal Update

Trans-Pacific Partnership Takes On E-Commerce, Cybersecurity and Encryption

4 February 2016
Mayer Brown Legal Update

The Trans-Pacific Partnership trade agreement (TPP) was signed on February 4, 2016. The TPP concerns a wide range of issues and has been negotiated over several years by the United States and 11 Pacific Rim trading partners (collectively, the Parties). Signing the agreement is not ratification. Rather, it triggers the process by which the TPP can be considered by each country’s domestic ratification procedure.

President Barack Obama has urged leaders in Congress to approve the trade deal under the terms of the fast-track trade legislation, which allows for expedited consideration and does not permit amendments.

The TPP agreement would be the largest regional free trade agreement to date for the United States. It was negotiated with Australia, Canada, Japan, Malaysia, Mexico, Peru, Vietnam, Chile, Brunei, Singapore and New Zealand. It includes more robust rules on digital trade than previous US deals and has a focus on promoting Internet-based commerce.

In November 2015, the final negotiated text of the TPP was made public. While the provisions promoting digital trade are not front and center in an agreement that runs over 30 chapters, the provisions are nonetheless important, and this legal update provides a brief summary of the key portions.

Chapter 14 (Electronic Commerce):1

  • No customs duties on digital content (Article 14.3)

The Parties agreed not to impose customs duties, or tariffs, on electronic transmissions or digital content moving from the territory of one party into the territory of another party. This provision does not prevent Parties from applying internal taxes on digital content.

  • Non-discriminatory treatment of TPP-member digital products (Article 14.4)

The agreement provides that the digital products of all Parties, such as computer programs, text, video, sound or any other digitally encoded products, must be treated equally by all Parties. Thus, the Parties are not permitted to discriminate against digital products originating in the territory of another Party.

This non-discrimination provision specifically excludes broadcasting, as well as government subsidies and grants.

  • Protection of online consumers from fraud and deceit (Article 14.7)

Each Party to TPP must adopt and maintain consumer protection laws that protect online consumers from fraud and deceptive commercial activities. The Parties further agreed in principle to cooperate with each others’ national consumer protection agencies to enhance the effectiveness of consumer protection laws applicable to cross-border e-commerce.

  • Protection of personal information of online consumers (Article 14.8)

Each Party committed to adopt or maintain a legal framework to protect the personal information of e-commerce users. A footnote in the TPP clarifies that the current US system—sector-specific privacy laws and enforcement by the Federal Trade Commission of voluntary undertakings by enterprises relating to privacy—meets this obligation. The TPP also states that the Parties should publish information on how individuals can seek remedies and how businesses can comply with legal requirements. Although the Parties may take different approaches to protecting personal information, they should attempt to promote compatibility across their jurisdictions. This latter point is a reference to the ongoing work on privacy law interoperability among APEC members.

  • Freedom of cross-border data flows (Article 14.11)

The Parties committed to allow the cross-border transfer of information by electronic means when done so for business purposes. The Parties may adopt measures that interfere with this general commitment in order to advance legitimate public policy objectives, but such measures must not be arbitrary, discriminatory or constitute a disguised restriction on trade. Additionally, any interference with the cross-border electronic transfer of information must not be more restrictive than required to achieve a legitimate objective.

  • General prohibition against data localization (Article 14.13)

The Parties agreed not to require the use of computing facilities within their territories as a condition for doing business. This general prohibition on “localization” of servers allows companies to provide electronic products and services in TPP partner countries without having to build expensive and unnecessarily redundant data centers. Any Party that interferes with this general prohibition in the pursuit of a legitimate public policy objective must do so in a manner that is non-discriminatory, is no more trade-restrictive than required to achieve its legitimate goal and is not a disguised restriction on trade.

  • Cooperation on cybersecurity matters (Article 14.16)

The Parties’ recognize in the TPP agreement the importance of cooperating on cybersecurity matters, including using “existing collaboration mechanisms” to identify and mitigate malicious intrusions and malicious code. However, the text of the TPP contains no specific obligations with respect to such cybersecurity cooperation.

  • No requirement to provide source code to import or sell software (Article 14.17)

Software owners are not required to transfer, or provide access to, their source code as a condition for importing, distributing, selling or using such software in another Party’s territory. This provision only applies to mass-market software or products containing software; it does not apply to software used for critical infrastructure. This provision is also separate from any local requirements related to patent registration, which may require software owners to disclose their source code.

Chapter 8 (Technical Barriers to Trade):

  • Sustaining encryption (Annex 8-B)

The TPP Parties are prohibited from requiring, via a technical regulation or conformity assessment procedure, manufacturers or suppliers to provide access to a product’s encryption technologies as a condition of manufacture or sale. This prohibition excludes transactions with governments. The TPP makes clear that law enforcement officials are not prohibited from requiring service suppliers to provide, pursuant to legal procedures, unencrypted communications.

  • Preserving standardization and global interoperability (Articles 8.5-8.8)

The TPP requires that Parties cooperate to ensure that international standards and recommendations likely to form the basis for technical regulations do not create unnecessary barriers to trade. These Articles impose process obligations to ensure that each Party treats the conformity assessment body (that is, the entity that determines whether requirements in technical regulations or standards are fulfilled) located in another Party no less favorably than its own. Other process obligations include transparency requirements, such as requiring Parties that are developing technical regulations, standards and conformity assessment procedures to include the participation of persons from other Parties. TPP Parties are also encouraged to provide at least a six-month period between the final publication of a technical regulation and the time the Party requires suppliers to conform their goods.

1 The Chapter of the TPP related to e-commerce does not apply to government procurement or to information held or processed by or on behalf of the Parties. Moreover, financial institutions and cross-border financial service suppliers are not covered by certain provisions, such as the obligations on cross-border data flows and server localization. This general exception includes data collection measures taken by the Parties.


  • Rajesh De
    T +1 202 263 3366
  • Timothy J. Keeler
    T +1 202 263 3774
  • Kendall C. Burman
    T +1 202 263 3210

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