23 Nov 2021

Digital Trade: Asia leading the world

Guest Blog: Nimisha Tailor at Access Partnership delves into digital trade acceleration in Asia.

New and emerging technologies like Artificial Intelligence, Blockchain and 5G, are opening new doors to cross-border trade, at a faster and seamless rate. With increased economies of scale and scope, the World Trade Organisation (WTO) estimates that digital technology can increase trade by 1.8–2%.

Digital trade, which includes ecommerce 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.  

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 (DEA) to establish frameworks that promote interoperability between different technologies. 

Why is Digital Trade important? 

Digitalisation is boosting trade in two ways: It is leading to product innovation where there are new or better products and services are available for trading and/or at less cost. Digitalisation is also driving efficiencies in global supply chains and different stages of the supply chain are being bypassed or made smoother. 

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? 

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 a number of 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 

It is likely that other countries will 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 a free-trade deal with Australia which includes a digital trade component to enable cross-border data flows and ensure appropriate protection for consumers  

Implications 

DEAs or new/amended FTAs will play an important role in global digital trade and deliver economic benefits. For example, it is estimated that 70 per cent of UK services exports (£3.2 billion ($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.3  

Barriers to digital trade can be lowered by enabling the free flow of data and facilitating electronic exchange of trade documents, contracts and signatures. DEAs and new /amended FTAs also provide businesses and governments 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 like 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. 

Recommendations 

  • With the growing importance of digital trade, governments and businesses need to understand the economic benefits of trade. Digital trade is a new and developing aspect of trade. While e-commerce is a large component, it is much broader in scope that is not fully understood. 

  • Governments and business should unlock the trade opportunities available under the new wave 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 flows regulation. 

  • Not all digital trade agreements are the same. When comparing DEAs and existing FTAs, there are different approaches to different areas. Business and government agencies will need to examine the specific trade rules in the agreements and their implications. 

  • Understanding the benefits international standards under DEAs. Alignment to international digital trade standards can enable businesses to digitalise using systems that can interoperate and interconnect with one another, allowing for frictionless trade.