Digital Trade Governance in Asia-Pacific Region

Fan Ying

In a world under the combined impacts of major changes unseen in a century and the COVID-19 pandemic， the digital economy is undergoing fast development. Digital trade governance has become the frontier and an integral part of global economic governance. The Asia-Pacific region has become a frontrunner in digital trade governance in recent years， and regional cooperation in this field boasts distinctive features.

Features of Digital Trade Governance in Asia-Pacific

The Asia-Pacific region is one of the most dynamic growth belts in the world and a powerhouse of global growth. In the digital age， cooperation on digital trade governance in the region distinguishes itself from the following aspects.

First， cooperation mechanisms are diverse in forms and content. Asia-Pacific cooperation on digital trade governance has different forms. It has moved from enactment of provisions， to chapters and to agreements. In this process， the regulatory framework for digital trade governance has also become more fleshed-out， sophisticated and refined. Regional mechanisms differ from one another in terms of content. For instance， the United States-Mexico-Canada Agreement （USMCA） which embodies Americas propositions is quite radical and strict. The U.S.-Japan Digital Trade Agreement is more moderate with some revisions and expansion on the basis of the USMCA. The Regional Comprehensive Economic Partnership fully accommodates the competitiveness of developing countries and especially underdeveloped countries in the region. In addition， a growing number of digital trade agreements like the Digital Economic Partnership Agreement （DEPA） initiated by Chile， New Zealand and Singapore in 2020， the UK-Singapore Digital Economy Agreement and the Korea-Singapore Digital Partnership Agreement signed in 2022 are divided into “modules”. Negotiations on rules cover a wide range of new areas from cross-border data flows to Fintech and financial services， cyber security， digital trade facilitation and digital identities cooperation.

Second， cooperation mechanisms are flexible and inclusive. Flexibility and inclusiveness have long been the hallmark of economic and trade cooperation in the Asia Pacific. Take DEPA， the first digital-only multilateral agreement， for example. It covers nearly all areas related to the digital economy and digital trade， including business and trade facilitation， treatment of digital products and related issues， data issues， business and consumer trust， emerging trends and technologies， innovation and the digital economy， small and medium enterprise cooperation as well as digital inclusion. To attract countries in different stages of the digital economy and digital trade， DEPA employs an “a la carte” approach in which signatories can choose to accept some modules in light of their conditions rather than join the agreement in its entirety. Such flexibility opens more opportunities and pathways for developing countries to engage in cooperation on digital trade governance in greater depth， making regulation of global trade in the 21st century more accessible. Thanks to its flexibility and inclusiveness， DEPA has demonstrated considerable attraction and influence， and gained the attention of many countries. To date， China， South Korea and the UK have already submitted applications to join the agreement.

Third， small- and medium-sized open economies in the Asia-Pacific represented by Singapore have had remarkable performance. Against the backdrop of rapid development of digital technologies and the digital economy， small- and medium-sized open economies in the region have initiated， actively engaged in negotiations for， and worked towards the signing and implementation of several digital trade and e-commerce agreements. These agreements serve as public products for regional and international cooperation on digital trade governance. Singapore， a typical small open economy known for its small state diplomacy， stands out. With a keen understanding of the impacts of digital technologies on global trade， an interest in global economic governance and aspirations for a say in designing global trade rules in the age of digital economy， the country has signed several digital trade agreements in a short span of time. In this process， Singapore has demonstrated such qualities as being flexible， open， inclusive， politic and ready to seek common ground with trade partners. It has also shown its coordination， collaboration and leadership skills in promoting regional economic integration.

Fourth， the Asia-Pacific has become a pacesetter in global digital trade governance. Among the 7 existing mechanisms for digital trade governance in the world， the ASEAN Agreement on Electronic Commerce， the U.S.-Japan Digital Trade Agreement， the Digital Economy Partnership Agreement， the Australia-Singapore Digital Economy Agreement， the UK-Singapore Digital Economy Agreement and the Korea-Singapore Digital Partnership Agreement all have their roots in the region， except for the Mercosur Agreement on Electronic Commerce. These Asia-Pacific-born agreements are easier to be reached， as the parties involved are small in number with similar digital levels， values and ideas. These agreements can meet member states urgent demands for digital trade governance. At the same time， they also enrich global trade governance in the age of the digital economy， add momentum for the institutionalization of digital trade governance in the region and beyond， and enable the Asia-Pacific region to champion， explore and promote global digital trade governance.

Rationales Behind Asia-Pacifics Lead

It is no coincidence that the Asia-Pacific region leads and breaks new ground in digital trade governance， and has given birth to DEPA. There are some right conditions.

First， the Asia-Pacific region is home to many pioneering digital economies with high demand for regional digital trade governance norms. The region， an engine of global growth for many years， has witnessed the rise of a number of pioneers in the digital economy such as the United States， China， South Korea， Canada， Australia， Singapore and Japan， thanks to world-leading digital technologies， hefty capital flows， a large population and a promising electronics consumer market. As some countries in the region accelerate digital transformation and their growth becomes increasingly digital-driven， there is an urgent need for digital trade governance norms. This gives rise to the birth of new mechanisms dedicated to digital trade governance to serve high-standard competition in Asia-Pacifics digital economic and trade market.

Second， APECs long-held spirit featuring openness， inclusiveness and mutually beneficial cooperation has borne new fruits in the era of the digital economy. As early as the dawn of the century， in view of the impact of evolving digital technologies on the form， content and participant of traditional economic and trade cooperation， as well as the global economy and trade at large， APEC has put on the agenda the exploration of regional governance rules for digital trade and e-commerce， with a particular focus on cross-border privacy protection and cross-border digital trade facilitation. APECs rich experience in digital trade and e-commerce governance sets a strong basis for regional cooperation in digital trade governance， and offers valuable references to global governance in this field.

Third， the Digital Silk Road advocated by China has become a new highlight and engine that boosts digital connectivity in developing countries in the Asia-Pacific region. According to the National Development and Reform Commission of China， as of November 2022， China had signed memorandums of understanding on digital cooperation with 17 Belt and Road countries including regional countries like Singapore， South Korea and Laos. It has also established bilateral silk road e-commerce cooperation mechanisms with 23 countries， including APEC members like Singapore， Vietnam， Cambodia， New Zealand， Australia， Chile and Russia. In addition， China has engaged with ASEAN member states and other regional developing countries in productive cooperation on digital transformation， cross-border e-commerce and smart logistics. Software and hardware progress in building the Digital Silk Road has greatly enhanced ASEAN countries digital trade governance. The Digital Silk Road has become not only an integral part of Belt and Road cooperation， but also a facilitator for digital trade hardware and software connectivity and people-to-people exchanges that lay the groundwork for a regional partnership on high-standard digital interconnectivity.

Major Challenges of Digital Trade Governance in Asia-Pacific

Despite the major headway in cooperation on digital trade governance， the Asia-Pacific region also faces the following challenges and uncertainties.

First， a proper balance must be stricken between digital transformation and the security of the digital economy to reduce uncertainties brought by digital trade governance rules. Digital trade is more complex and sensitive than traditional trade， as it involves data， a key production factor with great strategic value， and bears on national security， state governance， ideology， international communication and civil rights. Therefore， despite a growing recognition of the importance of digital transformation， many developing countries in the Asia-Pacific region are still cautious about governance regulations oriented towards digital trade liberalization， which to some extent makes intra-regional cooperation on digital trade governance more difficult.

Second， digital trade governance rules of diverse platforms and complex models tend to be fragmented. There are diverse platforms for digital trade governance in the Asia-Pacific region with different models and structures. On the one hand， these platforms have enhanced digital trade governance capacity and digital partnership networks in the region. On the other hand， they have also added to the trend of fragmentation of governance rules. This can increase the business cost of digital trade activities and the cost of digital trade governance in the region and beyond， make integration of rules and regulations more difficult， and lower governance efficiency， all of which undermine the overall stability and development of the digital trade governance system in the Asia-Pacific and beyond.

Third， Americas attempts to reshape order in the Asia-Pacific out of hegemonic and geopolitical considerations cast a shadow over regional economic cooperation. Since taking office， the Biden administration has introduced a series of measures to reshape cooperation orders in the Asia-Pacific region in a bid to contain Chinas development. Facilitated by the US， the Indo-Pacific Quadrilateral Dialogue （QUAD） between the US， Japan， India and Australia has been elevated to the leaders summit. The trilateral security pact between the US， the UK and Australia （AUKUS） and the Indo-Pacific Economic Framework （IPEF） has been established. The US has also proposed to build the Chip 4 Alliance with Japan， South Korea， and Taiwan， and has signed into law the CHIPS and Science Act to accelerate the development of its chip industry through substantial tax breaks and subsidies. These moves lay bare the countrys attempts to disrupt economic cooperation in the Asia-Pacific region by building ideologically-charged “small yards with high fences”， forming exclusive circles and engaging in bloc confrontation against China， erecting walls and barriers， and pushing for decoupling. They add uncertainty to regional cooperation and pose a grave challenge to the overall stability and development of the region.

Fourth， the digital divide makes underdeveloped countries underprepared for digital trade governance. Asia-Pacific， a diverse region as it is， is home to developing countries with a low level of digitalization. Underdeveloped countries in particular face such barriers as weak digital infrastructure， a low Internet penetration rate and a shallow talent pool for digital transformation. The digital divide can hold back the overall development of the digital economy in the region， and hamper intraregional participation in digital trade governance. This can also hinder regional and international cooperation for high-level digital trade.

Conclusion

The world has entered a new period of fluidity and change. Geopolitical tensions and the evolving economic dynamics have exerted a negative impact on the development environment and cooperation structure of the Asia-Pacific， and increasingly turned the region into a field of great power rivalry and a place fraught with international disputes. At the same time， digital transformation is becoming an important means of reordering global production factors， reshaping global economic structures， and transforming global competition. It makes the COVID-hit global economy and international trade more resilient and dynamic. Digital transformation also points to the direction for regional and global growth and is fast becoming a critical force of reshaping global trade. The Asia-Pacific， home to many frontrunners in the digital economy， has done really well in digital trade governance in recent years. It has become a pioneer and bellwether in international economic governance in the era of digital globalization. These developments will have a profound impact on the Asia-Pacific economy which is at a critical stage of post-COVID recovery.

Fan Ying is Professor of School of International Economics at China Foreign Affairs University