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00:00PROVISIONS ON THE DIGITAL ECONOMY, PATENTS, VERY IMPORTANT. DAVID: OK. DIGITAL TRADE MAY NOT HAVE BEEN PEOPLE'S RADAR SCREENS BUT IMPORTANCE WITH U.S. DIGITAL ECONOMY GROWING. SOMEONE IS MARTIN SCHROETER, I.B.M. HEAD OF SALES. MARTIN, THANK YOU FOR BEING HERE. WHAT DO YOU MEAN BY DIGITAL TRADE? IT'S NOT A PHRASE WE HEAR THAT OFTEN. MARTIN: WHEN WE THINK OF DIGITAL TRADE, MAYBE IT'S EASIEST TO TALK ABOUT THE COMPONENTRY. THINK OF THE INFRASTRUCTURE IT TAKES FOR COMPUTERS AND NETWORKS AND SOFTWARE TO INTERACT AND THEN PUT ON TOP OF THAT JUST THE TRANSACTIONAL VALUE OF THINGS THAT ARE GOING ACROSS BORDERS WHEN YOU'RE ORDERING THINGS DIGITALLY AND ADD TO THAT AGAIN ALL OF THE CONTENT THAT MIGHT BE TRAVELING DIGITALLY. THEY ARE A SUBTANGS DRIVER OF ECONOMIC GROWTH. DAVID: DOES IT INCLUDE THE HARDWARE AND SOFTWARE? MARTIN: AND THE CONTENT. AND THE CONTENT. THE INFRASTRUCTURE, THE TRANSACTIONAL VALUE AND THE CONTENT. IN THE CASE OF MEDIA, YOU HAVE A LOT OF CONTENT THAT'S MOVING. DAVID: SO YOU HAVE THREE PRINCIPLES YOU REALLIESS SPOUSE GOING FORWARD TO MAKE SURE WE -- YOU REALLY ESPOUSE GOING FORWARD TO MAKE SURE -- PREVENT DATA LOCALIZATION, PROTECT ALGORITHMS AND SOURCE CODE. PERMIT FREE FLOWS OF DATA ACROSS BORDERS. MARTIN: WE HAVE THE DIGITAL EQUIVALENTS OF TARIFFS AND HOW IT WILL SLOW DOWN CLIENTS OF BIG COMPANIES THAT WANT TO OPERATE GLOBALLY AND IMPEDE THEIR ABILITY TO OPTIMIZE THEIR SUPPLY CHAINS AND LOGISTICAL PROCESSES. OUR REVIEW IS AND IT SHOULD BE PERMITTED UNLESS, UNLESS THERE IS A STRONG, STRONG REASON. AND THE WAY, FOR INSTANCE, THE U.S. M.C.A. WAS WRITTEN, IT DOES HAVE SOME EXCLUSIONS BUT THEY WERE WRITTEN VERY WELL AND NARROW. PERMIT FREE FLOW OF DATA UNLESS SOMETHING IS EXPLICITLY ELIMINATED. SECOND IS THIS IDEA OF DATA LOCALIZATION. IT'S A LITTLE BIT OF A FALSE PROTECTION, IF YOU WILL. A NUMBER OF COUNTRIES ARE DEBATING THIS IDEA, WELL, WE'LL HAVE TO MAKE SURE THE DATA STAYS HERE. THE BAD ACTORS IN THE WORLD, THEY DON'T LOOK AT THE MAPS. THEY DON'T KNOW WHY THE BOUNDARIES ARE. THE IDEA IF YOU KEEP IT IN YOUR OWN COUNTRY OR LIMIT WHERE IT CAN GO, IT'S REALLY A FALSE SENSE OF SECURITY. THE BAD ACTORS WILL GO WHEREVER THEY NEED TO. IT WILL CREATE A LOT OF INEFFICIENCIES AND A LACK OF PRODUCTIVITY IF YOU'RE FORCED TO STORE DATA IN CERTAIN SPOTS. AND THEN FINALLY, THE IDEA OF OPENING UP SOURCE CODE AND THE IDEA OF FORCING COMPANIES TO EXPOSE SOURCE CODE IS A REALLY, REALLY BAD IDEA AS A CONDITION OF DOING BUSINESS. WE ALWAYS PROTECHED OUR SOURCE CODE. WE THINK OF SOURCE CODE AND ALGORITHMS AS THE EQUIVALENT OF 20TH CENTURY DESIGN. WE FEEL VERY STRONGLY THAT MAKING SOURCE CODE -- REQUIRING SOURCE CODE TO BE GIVEN UP WE'RE LOSING CONTROL OF THAT AS A CONDITION OF DOING BUSINESS IS A REALLY, REALLY BAD IDEA. DAVID: DRAW THE COMPARISON WITH TRADING GOODS. IF YOU GO BACK TO WORLD WAR II, WE WERE TRADING, TARIFF AND NONTARIFF. WE HAD GATT AND W.T.O. TO INCREASE THE FREE FLOW OF GOODS, WHERE ARE WE WITH DIGITAL TRADE? ARE WE BACK IN THE DAYS OF 1947 OR NOT THERE YET? HOW MUCH RESTRICTION IS THERE? MARTIN: I THINK WE'RE IN A REASONABLE SPOT BECAUSE IT'S A DISCUSSION THAT IS HAPPENING IN A NUMBER OF LOCALITIES. SO, I'LL USE THE U.S. M.C.A. AS AN EXAMPLE. THAT HAS SOME REALLY POWERFUL PROVISIONS ON ALL THREE OF OUR PRINCIPLES. SO IT DOES PERMIT THE FREE FLOW OF DATA, AS I SAID. IT DOES NOT REQUIRE DATA LOCALIZATION AS A CONDITION. IT DOESN'T REQUIRE YOU TO GIVE UP YOUR SOURCE CODE. IN FACT, IT ACTUALLY GOES ONE STEP FURTHER AND DOESN'T REQUIRE YOU TO GIVE UP YOUR ALGORITHMS AS A BUSINESS. WHERE ARE WE TODAY, WE ARE SEEING LOTS AND LOTS OF GOOD INSTANCES. T.P.P. HAD SOME OF THESE AS WELL. WHAT WE'RE NOT SEEING, THOUGH, AND WHAT WE'RE ASKING FOR IS EVERYONE TO COME TOGETHER TO LET'S GET ONE GLOBAL, ONE GLOBAL WHAT WE'VE CALLED AN IDEA, INTERNATIONAL DIGITAL ECONOMY AGREEMENT. DAVID: ON TWO ISSUES TRUMP SAID. CHINA IS NOT GOOD ON THIS SUBJECT. THAT THEY ARE IN FACT RESTRICTIVE, THEY DO REQUIRE TO GIVE YOU SOURCE CODE. NUMBER ONE. NUMBER TWO. HE SAID THIS U.S. M.C.A. IS REALLY PROGRESSIVE, STATE OF THE ART. IS HE RIGHT? MARTIN: ABSOLUTELY PROGRESSIVE AND STATE OF THE ART. T.P.P. HAD MANY OF THESE. T.P. PFRLT WHEN IT WAS STARTED, -- T.P.P., WHEN IT WAS STARTED, NO ONE WAS TALKING ABOUT ALGORITHMS. THE M.C.A. INCLUDED THAT. THE ISSUE AROUND PROTECTING YOUR RIGHTS AND YOUR SOURCE CODE, WE FACED THAT AND WE'VE ALWAYS PROTECTED OUR SOURCE CODE. WE NEVER GAVE UP OUR SOURCE CODE TO DO BUSINESS ANYWHERE. WE WOULDN'T. DAVID: KEEP I.B.M. FROM BEING FULLY COMPETITIVE ANYWHERE IN THE WORLD? MARTIN: IT HASN'T TO DATE. WHERE WE HAVE OPERATIONS ALL OVER THE WORLD, WE PROTECT OUR SOURCE CODE, WE PROTECT OUR ASSETS AND WE DO THE SAME WITH OUR CLIENTS. WE HELP OUR CLIENTS PROTECT THEIR DATA. THIS ISSUE IS MORE OF A POLICY ISSUE. WE NEED TO GET -- SO THERE IS A PRACTICE TO PROTECT OUR OWN THINGS. THERE IS A PRACTICE WHERE WE HELP OUR CLIENTS AND OUR CLIENTS HAVE TO MAKE SURE THEIR DATA IS ENCRYPTED AND THEY'RE DOING ALL THE RIGHT THINGS TO PROTECT THEIR ASSETS. WE ARE ON A POLICY POINT. LET'S HAVE A POLICY THAT SUPPORTS THIS AS WELL. LET'S HAVE A POLICY THAT DOESN'T REQUIRE ANYBODY TO GIVE UP SOURCE CODE OR GIVE UP ACCESS. DAVID: I SAID THAT THE DIGITAL ECONOMY IS GROWING FOUR TIMES AS FAST AS THE OTHER ECONOMY IN THE UNITED STATES. WE SAW A MCKENZIE STUDY THAT SAID ESSENTIALLY DIGITAL TRADE AROUND THE WORLD IS LIKE 35%, 40% OF ALL TRADE AT THIS POINT, GROWING FAST. GO OUT FIVE YEARS, 10 YEARS, WILL IT OVERTAKE TRADE IN GOODS? WILL IT INCREASINGLY BE WE NEED TO FOCUS ON DIGITAL TRADE RATHER THAN TRADE IN GOODS? MARTIN: OH, ABSOLUTELY. WE CAN DO AND WE CAN HELP OURSELVES. WE, ALL OF US, CAN HELP OURSELVES BY GETTING THESE KINDS OF POLICIES. WHAT WE SEE IN ADDITION TO THE DIGITAL ECONOMY GROWING, THE JOB GROWTH THAT DRIVES THE DIGITAL ECONOMY ARE ALSO THE KINDS OF JOBS OF THE FUTURE. SO WE, IN I.B.M., WE'RE WORKING ON MAKING SURE PEOPLE ARE TRAINED FOR THOSE KIND OF JOBS. MAKING SURE WE'RE CREATING THAT NEXT WORK FORCE. THAT'S IMPORTANT. BUT IN ORDER TO GET THE FULL BENEFIT WE HAVE TO HAVE THESE KINDS OF POLICIES TO DRIVE THAT KIND OF JOB GROWTH. EVERYBODY IS INTERESTED. FORGET ABOUT BEING POLITICAL. EVERY POLITICIAN, AFTER ADMINISTRATION, EVERY GOVERNMENT IS INTERESTED IN MAKING SURE -- EVERY ADMINISTRATION, EVERY GOVERNMENT IS INTERESTING IN MAKING SURE THEY CREATE JOBS FOR THEIR OWN CITIZENS. DAVID: FROM YOUR UNDERSTANDING, WHO ARE THE COUNTRIES DOING THIS BEST AND WHO ARE THE -- I WON'T SAY BAD ACTORS -- BUT THE ONES THAT HAVE MOST IMPEDIMENTS? MARTIN: EVERYONE IS STILL DEBATING. IN THE U.S., FOR INSTANCE, YOU USED THE STATISTIC FROM 2006 TO 2016, THE DIGITAL ECONOMY GREW FOUR TIMES FASTER. WE SAW LABOR PRINT THIS MORNING IN TERMS OF UNEMPLOYMENT. WHILE YOU WOULDN'T CONNECT THOSE DIRECTLY, U.S. HAS EMBRACED TECHNOLOGY AS WELL AS ANYBODY ELSE IN THE WORLD, HAS DRIVEN A LOT OF JOBS, A LOT OF JOB GROWTH AND A LOT OF VALUE CREATION. SO THE U.S. HAS EMBRACED TECHNOLOGY AND HAS AN ABILITY NOW TO LEAD AGAIN AS WE GO INTO THE NEXT ROUND OF DIGITAL TRADE DISCUSSIONS TO TRY TO LEAD THE WORLD INTO GETTING A GLOBAL AGREEMENT ON HOW WE WANT TO INTERACT. DAVID: THAT SOUNDS LIKE A VERY EXCITING NEW WORLD. DOES IT HAVE RAMIFICATIONS FOR EQUALITY IN THE SENSE, YOU WORK AT AN ASSEMBLY LINE, YOU COULD HAVE A REALLY GOOD LIFE. ARE WE SAYING GOODBYE TO THAT BECAUSE YOU HAVE PEOPLE WHO ARE VERY HIGHLY TRAINED, VERY SKILLED, MAKING A LOT OF MONEY AND COMPANIES -- BUT IT IS LEAVING SOME OF THE REST BEHIND? MARTIN: OUR VIEW IS DIFFERENT. OUR VIEW, IN FACT, THE JOBS OF THE FUTURE, WHILE THEY WILL CHANGE TO REFLECT THE THINGS WE CAN DO AND THE USE OF TECHNOLOGY, THE JOBS OF THE FUTURE AREN'T NECESSARILY ALL GOING TO REQUIRE A COLLEGE DEGREE. IN FACT, WE HAVE PROGRAMS WHICH WE'RE SCALING AROUND THE WORLD THAT ESSENTIALLY LOOK LIKE A SIX-YEAR HIGH SCHOOL, IF YOU WILL, WHICH ALLOW YOU TO COME OUT, THEN, TO COMPETE FOR THOSE DIGITAL JOBS. WE HIRE THEM OURSELVES AS WELL. WE WILL MAKE YOU RELEVANT IN THE WORK FORCE. WE HAVE THOSE PROGRAMS TODAY. WE THINK THEY ARE THE RIGHT THINGS TO DO AND WE DON'T SEE -- WE DON'T SEE A COLLEGE DEGREE REQUIRED FOR EVERY JOB ON THE PLANET. ALTHOUGH, AGAIN, EVERY JOB WILL BE AFFECTED BY THE ADVANCE OF TECHNOLOGY. DAVID: MARTIN, THANK YOU SO MUCH. REALLY FASCINATING. A LOT TO LEARN. MARTIN, SENIOR VICE PRESIDENT OF I.B.M. GLOBAL MARKETS.

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How Digital Trade Fits Into the USMCA

Martin Schroeter, senior vice president at IBM Global Markets, discusses how companies can approach digital trade under the new United States-Mexico-Canada Agreement. He speaks with Bloomberg's David Westin on "Bloomberg Markets: Balance of Power." (Source: Bloomberg)

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