Untangling the Digital Noodle Bowl: The Case for DEPA
Stephanie Honey is a trade policy consultant based in New Zealand and Director at Honey Consulting Ltd.
Digital technology is transforming the way we live, work and do business, and also how we trade. You could be reading this on a smartphone, perhaps after a day of Zoom calls with overseas clients, during which you may have been streaming music (or, let’s be honest, cat videos) and ordering something on Alibaba. All of these activities would have been unthinkable as a typical work day a decade ago, and involve digital trade – a fast growing sector of the global economy.
Even back in 2014, the economic value of cross-border data flows was estimated to have outstripped that of goods trade; in 2020, as traditional exports reeled under the body-blows of COVID-19, cross-border digital services thrived – although in fact this was only an acceleration of the upwards trajectory of digital-based globalisation since the Global Financial Crisis. We are likely to see even greater transformation of trade as frontier technologies like artificial intelligence (AI), blockchain and 5G become more widespread.
As countries contemplate how to boost post-pandemic economic rebuilding, it will be more important than ever to support the smooth functioning of digital trade. However, while digital trade is increasingly ubiquitous, policy responses have been fragmentary, creating a “noodle bowl” of divergent rules. Around half of the preferential trade agreements since 2000 include digital provisions, but these are patchy in scope, ambition and impact. Progress in the WTO e-commerce plurilateral negotiations – which would potentially achieve a more streamlined set of “global” rules – continues to be a hard slog.
At the same time, the number of trade restrictions is also increasing – to the extent that a new “Digital Policy Alert” has just been launched to map new restrictive measures on digital commerce around the world. But a solution may be within reach. The newly minted Digital Economy Partnership Agreement (DEPA), which is both agile and responsive to the ever-changing technological advances, could serve as a building block for future discussions on digital trade rules.
Asia-Pacific digital trade policy
The Asia-Pacific region has long been home to cutting-edge approaches, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the US-Mexico-Canada Agreement serving as a ‘template’ for the design of liberalising rules on data flows, electronic transactions and digital trade facilitation. Last year, two new digital-specific agreements were concluded – virtually, of course – in the Asia-Pacific: the Digital Economy Partnership Agreement (DEPA) involving New Zealand, Singapore and Chile; and the Digital Economy Agreement (DEA) between Australia and Singapore – actually an amendment to the existing bilateral FTA.
While DEPA and DEA build on the existing CPTPP template – for example, restating CPTPP commitments on data flows and electronic transmissions – they go considerably further in ambition in some areas, and in their scope. On ambition, for example, the agreements establish new gold-standard, binding commitments on paperless trade, on personal information protection, cybersecurity and transparency.
As for scope, the agreements situate digital trade within a broader context (“trade in the digital economy,” rather than “digital trade”), leading to a more holistic approach and a wider range of topics than in previous trade agreements. DEPA and DEA encompass issues as diverse as emerging technologies, innovation, competition, online safety and inclusion. This responds both to the complexity of modern business models and the ability of subtle non-tariff barriers to impede digital trade, or at least the realisation of its full economic potential. Figure 1 sets out the expanding range of topics covered in CPTPP, DEPA and DEA.
Figure 1: Digital topic coverage of various Asia-Pacific trade agreements
Source: Author, based on the text of the CPTPP, DEPA and DEA
Innovative approaches to digital trade policy: agility and collaboration
DEPA and DEA could be criticised for failing to establish binding rules for some topics (in the main, areas new to trade agreements), including digital identities, artificial intelligence, data innovation, digital standards and cutting-edge fintech. Instead, the approach is heavily weighted towards cooperation, collaboration and agility, setting out high-level principles, frameworks for future work and/or best-endeavours language, rather than ‘hard law’.
Far from being a failing, however, this approach is a strength: the tech world might describe it as a feature, not a bug. Anyone who has mulled over identifying a set of trade-related principles for AI that would be equally acceptable to Europe, the US and China, for example, will understand the challenges in developing definitive rules in some areas. Nor is the current scope exhaustive: a new DEPA Joint Committee is specifically tasked to consider ways to further enhance the partnership, with the potential to add new topics to the agreement over time, as technology evolves.
The agreements also emphasise dialogue with the private sector. This reflects the reality that the business community may know at least as much if not more than officials about how digital trade actually works, and what good guardrails might look like. Cybersecurity, for example, is often used as a justification for forced data localisation (the obligation to store data locally). Better cyber protection may in fact be achieved through geographically-unshackled, encrypted cloud storage. On the other hand, forced localisation may compromise the value of coordinated cross-border responses to cyber threats, create a ‘honeypot’ for hackers, and significantly raise costs for business.
Interoperability and standards
A further key concept in both DEPA and DEA is an emphasis on interoperability, compatibility and coherence in developing new trade rules and domestic digital regulation. The ability of digital systems and tools such as digital identities or digital Customs Single Windows to “talk to each other” is fundamental to the globalised, arguably borderless, digital economy; but the technologies and regulatory responses have often developed in silos – not surprisingly, creating a rich breeding ground for new non-tariff barriers along the way. Such interoperability is needed in respect of the technical standards, regulatory/legal settings and policy layers of digital trade for transactions to work seamlessly.
DEPA as a building block
Overall, however, the real value of DEPA lies not so much in the ambition, scope or size of the digital market it creates, but in its potential as a building block to broader, even multilateral, outcomes. DEPA was explicitly conceived to do just that. Its ‘modular’ design should enable others to make use of individual components in their own FTAs, or in the WTO e-commerce negotiations, or alternatively to dock on to the agreement as a whole. In fact, both Canada and Korea are already working towards accession.
By contrast, DEA (or as it is styled by Singapore, SADEA) is in effect a ‘closed set’ between Australia and Singapore, being part of their bilateral FTA. Singapore is now vigorously exploring similar Digital Economy Agreements with a range of other partners, including the United Kingdom (UKSDEA), Korea (KSDPA) and most recently, Viet Nam. While each of these agreements is likely to be of high quality and may include even further innovative ideas or commitments beyond those in the DEPA, there is a strong case to be made to seek to bring these various strands together and avoid a new ‘noodle bowl’ – albeit a high-quality and innovative one! – and instead support trade rules for digital that are more global in nature.
Bringing those other partners onboard DEPA would seem to be the obvious pathway here. In fact, New Zealand characterises DEPA as part of a strategy of “concerted open plurilateralism,” in which some of the smallest players in global trade can get creative in trade policy design, develop an agreement that is open to all who can meet the ambitious standards it sets, and encourage others to join, like a little snowball gradually gathering momentum. Indeed, a similar philosophy saw the original New Zealand-Singapore Closer Economic Partnership expand to the “P4” agreement with Chile and Brunei, and eventually become the CPTPP some 18 years later. Given the importance of digital trade, it is to be hoped that others will think seriously about joining DEPA, recognising that an agile and responsive approach to designing digital trade rules is well suited to a type of trade that operates in a state of constant disruption.
The views and opinions expressed in this blog are solely those of the original authors and contributors. These views and opinions do not necessarily represent those of TradeExperettes, the TradeExperettes editorial team and/or any or all contributors to this site.
