New and emerging technologies such as Artificial Intelligence, Blockchain, and 5G, are opening doors to cross-border trade at a faster and more seamless rate than ever. With increased economies of scale and scope, the World Trade Organisation (WTO) now estimates that digital technology could increase trade by 1.8–2%.[1] Considering the multiplier effects on local, national, and regional economies, the actual benefits of digital trade are likely to be higher and more widespread for businesses big and small, serving both mass and diverse customers in cities and rural areas.
Digital trade, which includes e-commerce and digital goods and services, has been accelerated by Covid-19, particularly in Asia where open economies are looking to international trade to recover from the pandemic. While digital trade provides opportunities, it can also create challenges if there are no clear rules and frameworks.
To maximise the gains, international organisations like WTO, APEC, G20, and OECD are trying to understand and reduce digital trade barriers and develop trading rules for the digital economy. At the same time, countries are entering into new forms of bilateral or multilateral trade agreements, known as Digital Economy Agreements (DEAs), to establish frameworks that promote interoperability between different technologies.
Why is Digital Trade important?
Digitalisation is boosting trade in two ways. Firstly, it is leading to product innovation with new or better products and services becoming available for trade or at less cost. The growth and variety of digital goods and services delivered over the Internet, namely, e-publishing, music files, software, and digital images, are prime examples.
Digitalisation is also driving efficiencies in global supply chains, and different stages of the supply chain are being bypassed or made smoother. For example, digital trading platforms make it easier for importers and exporters all over the world to connect, transact and deliver, reducing the need for costly intermediaries and distributors.
A key aspect of digital trade is the flow of data across countries to support digital transactions for both physical and digital goods and services.
What is the trend?
As digital trade flourishes, Asia has been leading the way using DEAs to establish bilateral and regional government cooperation to tackle the complex cross-cutting issues around the digital economy. DEAs aim to strengthen international cooperation in multiple digital areas including Artificial Intelligence, Data Privacy and Protection, Cross-Border Data, Digital IDs and E-invoicing and payments.
Singapore has already signed two DEAs – the Digital Economy Partnership Agreement (DEPA) with Chile and New Zealand and the Singapore-Australia Digital Economy Agreement (SADEA). Singapore has also launched negotiations with the Republic of Korea and the UK. The UK-Singapore Digital Economy Agreement (UKSDEA) will be the first DEA between an Asian and a European country and aims to enhance region-to-region digital connectivity. [2]
At a regional level, ASEAN Member States have agreed to start negotiations on the ASEAN Digital Economy Framework Agreement by 2025 to enhance jobs and investment in Southeast Asia.[3]
Other countries will likely follow Singapore and look for opportunities to trade with like-minded partners under a DEA or through a Free-Trade Agreement that encompasses digital trade. For example, the UK has agreed to a free-trade deal with Australia that includes a digital trade component to enable cross-border data flows and ensure appropriate protection for consumers.[4] The United States-Mexico-Canada Trade Agreement (USMCA) was updated to include a chapter on digital trade. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has a Framework for Digital Economy.
Implications
DEAs and new or amended FTAs will play an important role in global digital trade and delivering economic benefits. For example, an estimated 70 per cent of UK services exports (£3.2 billion (S$6 billion), ranging from financial and legal services to music streaming and e-books, were digitally delivered to Singapore in 2019, providing further untapped opportunities for the UKSDEA.[5]
Barriers to digital trade can be lowered by enabling the free flow of data and facilitating the electronic exchange of trade documents, contracts, and signatures. DEAs and new or amended FTAs also provide businesses and governments with the opportunity to co-operate on issues, such as data innovation and the development and adoption of digital standards. However, there could be unintended consequences such as new regulatory barriers or inconsistencies in the new wave of digital trade agreements, with even bigger consequences for countries that are still catching up to Asia’s digital trade.
Predictions
- With the growing importance of digital trade, governments and businesses will take steps to better understand the economic benefits of this new and developing aspect of trade. While e-commerce is a large component, it is much broader in scope and currently not fully understood. We expect to see more academic research in this area, raising awareness and understanding of the value e-commerce brings to economies.
- Governments and businesses will unlock the trade opportunities available under the new wave of digital trade agreements. Existing and future DEAs have the potential to deliver economy-wide and/or sector-specific benefits. However, there could be potential risks, which could involve trade barriers from regulatory gaps, uncertainty, and/or higher regulatory burden e.g., data flow regulation. We expect to see more negotiations start in 2022.
- Not all digital trade agreements are the same, and we will see bilateral agreements developed rather than a global model of best practice. Business and government agencies will need to examine the specific trade rules in the agreements and their implications. We expect to see more engagement by businesses in negotiation processes and a broader demand from businesses and civil societies to be consulted by their governments before and during negotiations.
- Alignment with international digital trade standards will enable businesses to digitalise using systems that can interoperate and interconnect with one another, allowing for frictionless trade. DEAs provide an opportunity for business and government agencies to work together to implement new standards for new technologies and align to existing ones. We expect to see greater reference to internationally recognised standards in all negotiation documents.
[1] MTI https://www.mti.gov.sg/Improving-Trade/Digital-Economy-Agreements
[2] UKSDEA https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2021/06/Singapore-and-the-United-Kingdom-Launch-Negotiations-on-Digital-Economy-Agreement.pdf
[3] Straits Times https://www.straitstimes.com/business/economy/asean-ministers-to-start-talks-on-regional-digital-economy-agreement-by-2025
[4] DFAT https://www.dfat.gov.au/trade/agreements/negotiations/aukfta/australia-uk-fta-negotiations-fact-sheet#digital
[5] UKSDEA https://www.gov.uk/government/news/uk-singapore-joint-statement-on-the-launch-of-negotiations-on-a-digital-economy-agreement
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