Digital trade deal ripe for the Indo-Pacific

U.S. Trade Representative Katherine Tai has gotten off to a busy start in her new role with a flurry of calls to her counterparts from all corners of the world. It is notable that in her coversations thus far with Asian partners she has raised digital trade as an area of potential future cooperation. This is a critical space where the United States can quickly engage in the Indo-Pacific region by proposing an agreement that weaves together existing pacts, tackles matters related to emerging technologies, while delivering benefits to the U.S. middle class.

Indeed, the time is ripe for a regional digital trade agreement with U.S leadership. COVID-19 has underscored the importance of digital tools in all walks of life, including work, education and health, yet international rules governing their use have lagged behind. A regional deal would unite a group of countries in endorsing common standards and norms, including the principles of openness, inclusiveness, fairness, transparency and “data free flow with trust. It could provide an important jolt for the corresponding slow-moving negotiations in the World Trade Organization (WTO). And, it can get the United States back in the trade game in Asia, while it considers the merits of rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), albeit with certain revisions and updates.

Developing a digital trade agreement for the Indo-Pacific region would have the advantage of building on the high-standard digital commitments in the CPTPP, drawing on the more recent U.S.-Japan Digital Trade Agreement, the Singapore-Australia Digital Trade Agreement and the Singapore-New Zealand-Chile Digital Economy Partnership Agreement (DEPA). These agreements go beyond CPTPP in important ways, including strengthening commitments to cross-border data flows, expanding cooperation on the interoperability of privacy regimes, and developing new norms on cybersecurity.

The recently signed Regional and Comprehensiuve Economic Partnership (RCEP) agreement also includes an e-commerce chapter with provisions on the free flow of data and avoiding data localization requirements. However, the broad self-judging “public policy” exception in this chapter reduces much of the value of such commitments. It also does not include a commitment to non-discriminatory treatment of digital products as is found in other FTAs. 

This is a disappointing outcome given that many RCEP members had already agreed to stronger digital trade rules in other agreements. The RCEP rules on e-commerce largely reflect China’s approach to digital trade, with its demands for data localization, restrictions on cross-border data flows, and policies that favor domestic digital champions. Indeed, this Asian pact underscores how in the absence of U.S. leadership there is a real risk of further lowering of ambition in trade agreements, with potential negative spillover effects in e-commerce discussions in the WTO and in APEC.

As the U.S. develops an Indo-Pacific digital trade agreement it should listen to priorities, experiences and concerns of potential partners and draw from other models and approaches in existence. In particular, there are three important elements that would make a new regional digital agreement more dynamic, inclusive and beneficial to workers and citizens.

First, a regional digital trade agreement could strengthen cooperation on articifical intelligence (AI) and other emerging technologies. For instance, there is much work underway to develop AI ethical principles and standards. Here, the recent Singapore-Australia digital trade agreement provides an example of how a trade agreement can support AI innovation and trade consistent with democratic norms and human rights. 

Second, a regional agreement must ensure that the benefits of digital trade flow to workers and SMEs, and help to narrow the digital divide. DEPA provides a useful example of how this might be done, starting with a commitment to expand digital inclusiveness. It also puts a spotlight on SMEs and seeks to enhance information and tools available to them. Moreover, DEPA provisions on e-invoicing, express shipments and the interoperability of electronic payments should also facilitate SME participation. These aspects align closely to the objectives of the new U.S. worker-centric trade policy.

Third, adopting a “modular” approach like in DEPA should help to expand participation, beyond the list of usual suspects, including Japan, South Korea, Singapore, Australia and New Zealand. This approach opens the door for new entrants to sign up for parts of the agreement as a first step, while putting off the more difficult areas until they are ready. If the U.S. and its close partners are serious about promoting a model for the digital economy based on the values of openness and inclusiveness, allowing countries to join certain parts without waiting until they are ready to commit to everything is an innovative way to encourage countries to gravitate to this model over time.

The Biden administration is off to an impressive start in rebuilding alliances and partnerships in the Indo-Pacific region. But in demonstrating the United States “is back,” this re-engagement will need to include a strong trade component if it’s to be taken seriously.

Expanded trade and economic integration is what our Asian partners are seeking, as evidenced by CPTPP and RCEP. While they seem to accept that the U.S. can’t embrace a major trade negotiation at this time, they are looking for market-opening initiatives that demonstrate an enduring U.S. commitment to the economic prosperity of the region. Digital trade could be the first of such initiatives, perhaps serving as a building block to something larger. 

Wendy Cutler is vice president of the Asia Society Policy Institute. 

Joshua Meltzer is senior fellow at the Brookings Institution.