Towards an Asia-Pacific Digital Economy Governance Regime (Summary)

Introduction

With the rapid advancement of technologies and increased connectivity of people around the world, the digital economy is quickly emerging and becoming more and more embedded into society. While it has several advantages over the traditional economy in terms of accessibility and speed, this new economy also brings with it numerous challenges related to privacy and security. A number of bilateral, regional, and plurilateral agreements are being discussed and rules and standards are being set up to try to regulate the digital economy, but there is not yet any true and sufficient global governance with multilateral policy.

This joint symposium between RIETI and ANU brings together experts from all corners of the Asia-Pacific region, where the digital economy has a critical role to play, to share their insights, opinions, and ideas for a way towards an Asia-Pacific digital economy governance regime.

Opening Remarks

YANO Makoto (Chairman, RIETI / Project Professor, Institute of Economic Research, Kyoto University / Professor by Special Appointment, Sophia University)

Thank you very much for gathering today for this RIETI-ANU joint symposium, titled "Towards an Asia-Pacific Digital Economy Governance Regime." It is a great occasion for us to study and think about the current issues surrounding the Asia-Pacific region.

In every part of the world, digital transformation is taking place at a rather high speed. At the same time, digital protectionism is spreading in many parts of the world. In these circumstances, we face an urgent need to develop internationally consistent digital governance. We have asked today's speakers to address this issue through two sessions, one from a global viewpoint and the other one from the viewpoint of the Asia-Pacific region. I hope you will enjoy this symposium.

Panel 1: Global Economic Governance and the Digital Economy

Presentation 1

Wendy CUTLER (Vice President and Managing Director, Washington, D.C. Office, Asia Society Policy Institute)

There is a need for multilateral rules to govern the digital economy Right now, there are many international organizations and groupings getting into the game and trying to set rules, as well as many bilateral and regional trade agreements in this area. However, there is no clear leader. There are also many serious and sobering challenges in trying to set international rules. At the core, there are fundamental differences in philosophies and values, resulting in multiple regulatory frameworks.

As for the U.S., there is an emphasis on democratic values with respect to digital trade, which includes openness, transparency, and fairness. The U.S. is clearly looking to play a leadership role in developing rules with allies and partners. The Biden administration has been vocal about establishing a worker-centric trade policy. It will be increasingly important to demonstrate how digital economy rules will benefit workers and the middle class, promote equity and inclusion, expand SME participation, narrow the digital divide, and respond to consumer interests.

Looking ahead, we could think about establishing principles. We could start with practical, "confidence building measures," or low-hanging fruit. We should explore the module approach featured in the Digital Economy Partnership Agreement (DEPA). Finally, we could consider establishing a new international organization for dealing with the issues of the digital economy and explore how governmetns can better organize themselves to respond to the digital era, including the option of appointing National Digital Sherpas.

Presentation 2

Yiping HUANG (Professor of Economics and Deputy Dean, National School of Development (NSD) and Director, Institute of Digital Finance (IDF), Peking University)

First, digital technology is really transforming the Chinese economy, the most important contribution being the promotion of financial inclusion. It is also providing mechanisms for macroeconomic stability. Rather than the improved efficiency and user experience, the most important issue is financial inclusion and helping low-income households and SMEs to develop.

Second, development is still in the early stages and we have a lot of policy issues to address. We need to find the proper balance between big data analysis and the protection of privacy. We also need to think about the balance between innovation and financial stability. If we do not regulate properly, there could be significant financial risks, but if we regulate too strictly, there will be no innovation. Finally, we need to consider how to regulate big tech platforms, especially in terms of monopolies. The digital economy is different now and we should not rely on old-fashioned approaches.

If you look at globalization, the first wave was following the first Industrial Revolution, facilitated by reduced transportation and communication costs. The second wave started when President NIXON delinked the dollar from gold, starting the free flow of capital across countries. If the digital economy really gains momentum, I think this could be the third wave, but there is still a lot to be done before digital trade can really develop in an orderly way.

Presentation 3

Bilahari KAUSIKAN (Chairman, Middle East Institute, National University of Singapore)

Geopolitics is always with us in one form or another and it is naïve to think it will not have some influence on digital governance regimes. Today, U.S.-China strategic competition is a structural feature of international relations. However, I am certain that whatever issues they will eventually cooperate on, they will not include governance of the digital economy. Just because something is desirable does not mean it is achievable.

As a huge growing country and one of the main authorities of the region's growth, we cannot avoid dealing with China, but at the same time, China is at the heart of most of the instabilities and imbalances that threaten to derail the region's growth. It is simultaneously the solution and the problem. Can this contradiction be reconciled or at least mitigated? It is a matter of finding an appropriate balance between control and data flow, and whether this balance will be acceptable to the entire region.

A digital regulatory regime poses unique challenges that other regional frameworks do not. There seems to be a broad agreement that some form of a digital regulatory regime is desirable, but constructing such a regime engages fundamental differences of core values and interests between different political systems, which I think will not be easily bridged. With this in mind, if China decides to participate, we need to ask ourselves, "Why?"

Discussion

WATANABE:
I think we all agree that digital technology is transforming our society and economy, and it is transforming all citizens in every corner around the world. Prof. HUANG mentioned policy issues and also that competition policies will play a critical role. Ms. CUTLER and Ambassador KAUSIKAN mentioned the differences in philosophies and values. While some approaches were suggested for developing an Asia-Pacific digital economy, there are already basic principles in our toolbox like enhancing transparency, preserving non-discrimination, and ensuring the interoperability of different systems.

CUTLER:
As a former trade negotiator, one thing I learned is to be optimistic. When things look like they are going south, you need to regroup and think about what you can do with other countries. All of our countries have core, fundamental differences, so I think like-minded countries should come together and work on the types of rules that they want as a group, and then other countries could come on board over time. However, when China is insistent on having sovereignty and other countries want to see the free flow of data, it is very hard to come up with language to find common ground and bridge the gap. In terms of data and data privacy, there are different core beliefs, so we face an enormous challenge in going ahead in this space and trying to bridge the differences between the digital regimes of countries like China and the U.S., among others.

HUANG:
As an economist, I think political regimes are not going to change quickly. We cannot just expect everybody to come onto the same political regime before we do any business, so I think Ms. CUTLER's comment about finding opportunities to collaborate and cooperate is very important. If we really want to make it international, I think we need a platform or think tank to talk about all the issues and to share ideas, then we can potentially find some common ground.

I think globalization based on digital technology will take some time, but we all need to make progress in that direction. I think some kind of international mechanism or dialogue for policy exploration will be important. We have the International Monetary Fund (IMF) and the Financial Stability Board (FSB) that can help with the technical part of policy issues and standardize them across countries. Our countries have differences, but hopefully there will be a way for us to cooperate together.

KAUSIKAN:
I am a bit more optimistic after listening to Wendy CUTLER and Prof. HUANG. It seems that a digital governance regime in a narrow domain such as trade facilitation is probably doable, but unless we are content with keeping the regime narrow, we cannot avoid it forever if we are going to be more ambitious.

I think my own country, Singapore, would be more comfortable with a regime of data flow that is more restrictive that what the U.S. would consider ideal, and that is probably true for other ASEAN countries as well. The extent and degree will differ depending on the country and issue, but these are fundamental things that cannot be avoided.

Panel 2: An Asia-Pacific Digital Economy Governance Regime

Presentation 1

Rebecca Fatima STA MARIA (Executive Director, APEC Secretariat, Singapore)

The Asia-Pacific Economic Cooperation (APEC) is very hierarchical with a policy level and a working level. One of the challenges we face is integrating all the discussions. We hope to find a way to consolidate these discussions through our Digital Economy Steering Group (DESG) and our Internet and Digital Economy Roadmap. We also have Putrajaya Vision 2040, adopted last year, with a key pillar of innovation and digitalization. Also, this year's chair, New Zealand, has put an emphasis on digitally-enabled recovery.

The DEPA is a group of like-minded economies coming together and trying to make sure we go from plurilateral to multilateral. This is where I see the importance of middle powers and their ability to push the agenda for the rest of us.

Having said that, the challenge for APEC still remains. We are non-binding, so we can have deeper and more candid conversations, but at the end of the day, where will these conversations lead to? We want to look beyond the challenges. APEC has the role as an incubator of ideas. We have pathfinder initiatives which allow exploration and experimentation. We have a platform for building capacity and sharing best practices. We can go from plurilateral to regional, and there is an opportunity for us to build and strengthen the initiatives that we put in place.

Presentation 2

Deborah ELMS (Founder and Executive Director, Asian Trade Centre)

I think one key issue is that lots of governments think they have been fine without any rules. However, too much uncertainty and risk is problematic for companies. One way that we are working on improving this is by putting digital rules into existing or new trade agreements.

Digital is actually the connective tissue that binds together many other parts of the economy, so I think it is hard to imagine a digital-only ministry because they would ultimately be the government. I think it is key to remember that the government does not have to do it all. They just have to make the enabling environment. I think we need regular engagement with stakeholders on these issues because governments especially are not familiar with all the aspects of digital.

I think the three specific agreements to watch are the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the DEPA, and digital economy agreements (DEAs). The countries involved in these agreements are those that have had past experiences of working together, so it is a sort of evolution. This variation allows for multiple ways of getting to a solution to provide greater consistency in digital trade rules for the future. However, what we do not want is a proliferation of agreements that are all slightly different from one another because in the digital space, it is hard to know which agreements apply to a specific issue.

Presentation 3

Joshua Paul MELTZER (Senior Fellow – Global Economy and Development, Brookings Institution)

There are different equities in the digital and data space among companies, governments, and people, so the impacts are going to be different among countries and the values at stake are fundamentally different. I think security will increasingly be a core organizing principle of the digital space, including access to data and cross-border data flows. I think this will underline the need for greater coordination among countries.

Access to data and cross-border data flows are not the same issue for countries. Large countries have access to a lot of data and can do a lot more domestically before they have to worry about cross-border data flows. In addition, digitalization is happening at very different rates among businesses within countries.

To build trust, I think Data Free Flow with Trust (DFFT) is a great starting point. I think we are going to be limited in how ambitious we can be globally, which reinforces the need for an initial group of like-minded countries to come together and coordinate more effectively. I believe such a group has to be multi-stakeholder and at the leaders' level in order to be effective and act as a real coordinating mechanism. Finally, in terms of cooperation, I think what we can do in innovation and R&D in a practical sense must also be part of it.

Presentation 4

Peter LOVELOCK (Director, Technology Research Project Corporate)

Digital is booming and everyone has gone digital. We are seeing a race to regulate and a greater number of regulations coming up, but at the same time, we are seeing the dominance of digital platforms getting bigger. When it comes to digital, we have so many challenges. Policies and regulations are all going to require compromises and trade-offs. We have issues around trust, privacy, and security, as well as the issue of digital regulatory arbitrage which we see emerging on two fronts.

What do we need to do to address these challenges to take forward the digital economy governance frameworks? I would like to suggest five things to put in place in order to achieve this.

First, we need to recognize data as different from a good or service and develop a trade-in-data framework. Second, we need to develop an understanding of the digital value chain. Third, we need to make much clearer the roles of the participants in the digital trade framework. Fourth, once the first three have been established, and not before, we need to establish jurisdictional regulations to reinforce the rules of the road. Finally, and most crucially, we need to develop measurements and indicators for digital to begin to track what is working and what is not. That will be where the challenges will come for us.

Discussion

ARMSTRONG:
In APEC, there is a lot of progress on capacity building and technical cooperation at the working level, but what are the prospects at the leaders' level?

STA MARIA:
At the end of the day, the conversations we have with the private sector and the APEC Business Advisory Council (ABAC) are what really makes a difference. When you have a bilateral negotiation, the posturing is different. In APEC, it is about a more candid conversation with no strings attached.

ARMSTRONG:
What are the prospects of expanding membership with the DEPA? Why did Australia not join the DEPA?

ELMS:
Many member countries of the CPTPP, including Australia, simply do not see the point of joining the DEPA when they already have the standards of the CPTPP. The idea behind DEPA makes sense, but it is very thin on its own and it doesn't solve the problem that it was intended to of bringing in reluctant parties while keeping more ambitious members engaged.

ARMSTRONG:
How can groups of like-minded countries be defined or be more inclusive? Should we have flexible groups or should we have core groups that others join?

MELTZER:
Right now, different groups already exist like the G7 and the G20, so I think we have a variable geometry with different groupings that have leaders' level engagement with major parties. It may seem confusing and disorganized, but I think given the range of issues being discussed and the different equities at stake, this is the way forward.

ARMSTRONG:
Is it possible for different countries to come to an agreement on data protection or are we going to have each country going their own way?

LOVELOCK:
Data protection is just an issue of different jurisdictions talking to each other. I think data transfer mechanisms need to be reworked. They are clunky now, but they allow existing data protection to be able to talk to each other.

ARMSTRONG:
Bottom-up efforts are very important, but what about top-down efforts from the G7 and the G20? In addition, can the approach of the World Trade Organization (WTO) be used for digital governance?

ELMS:
If digital ends up being the economy, then we clearly are going to need to have cooperation take place like the WTO system, but I think there are all kinds of challenges, including technical, and other. We have to involve the private sector and do a much better job of educating government officials and regulators on the digital economy. Whether it is top-down or bottom-up is irrelevant in that sense.

MELTZER:
The G7 and the G20 will certainly continue to be important. In some respects, it will be one of the core forums for engaging with not only China, but Russia and others, but it is not the key steering committee for digital and it cannot be. The G7 is too European-focused, so we need to work on improving the situations there.

LOVELOCK:
We need to start addressing these issues looking forward both for the governance regime and trade agreements instead of looking backwards. We need to address digital challenges on their own terms, otherwise they are going to keep coming up. APEC is probably the prime place for taking some of this forward because it is non-binding, and we can have conversations while also recognizing that we are all different. We can have a public-private intermixing of technical savviness and the rules of the road that will allow us to participate at scale and at speed.

Closing Session

WATANABE:
I think we recognize a fundamental difference in our core philosophies and values. In terms of coverage, the issue goes beyond the traditional trade agenda. The technological and economic landscape is rapidly changing and data, privacy, and competition policies are increasing in significance. In terms of the approach, we can reach an agreement in some areas, but in other areas, we need to start by building confidence. In the end, digital governance needs to be supported by multiple stakeholders in society. Finally, we discussed the context in the Asia-Pacific, but the digital economy is global, so we have to ensure interoperability and harmony with other parts of the world, including Europe.

KAUSIKAN:
Digitalization is going to happen whether we like it or not. It is not going to wait for states to regulate it. It is moving ahead primarily by the private sector, but the private sector cannot be trusted to regulate itself. I think we are going to have to live with a certain degree of fragmentation for some time.

HUANG:
First, the need for an international initiative on the policies and regulations is important because this is evolving rapidly in many countries. An international standard will be much better early on because once regimes are set in individual countries, it will become much more difficult. I do not know whether we need a separate international organization for digital governance, but I think some kind of initiative is important. When we are talking about regulations, we need the skills, the platforms, and the capability of monitoring and regulating.

Second, about the role of China in digital trade, my sense is that the political regime is not going to change easily, but that does not necessarily mean things will not change. The Chinese government has openly declared that it is determined to join the CPTPP if possible. I think that is a very important indication that an international arrangement could actually help to move China in the right direction.

STA MARIA:
My takeaway is that there is clearly a need for leadership. My feeling is to use a platform like APEC that is non-binding. We can create a platform for appreciating and understanding what digital governance really means. APEC also has roundtables which involve many stakeholders from various sectors. This is where we can have conversations to help in educating policymakers.

ARMSTRONG:
A lot of our countries are dealing with shared and common interests, even with completely different political and economic systems. Moving towards multilateral rules, I think it is important to agree slowly to principles. I think that requires a lot of technical cooperation, capacity building, and non-binding cooperation like in APEC where we can build trust and confidence. In terms of membership, we need regional cooperation that is not at the expense of non-members. Finally, I think we are going to need both top-down and bottom-up approaches.

I would like to thank all the panelists and RIETI. I think this is going to be a discussion that is going to continue.