The current rules governing trade in services date back to negotiations in the early 1990s when the internet was still in its infancy. Three decades later, there is consensus that new free trade agreements are needed to facilitate the $11.5trn global digital economy.
“One of the great things about the internet is it abolished borders on information exchanges,” says Milton L Mueller, professor at the Georgia Institute of Technology School of Public Policy and co-founder of the Internet Governance Project. “But now we see a counter-movement in place in which people are trying to re-establish borders and we rarely see any good reasons for most of these barriers that have been set up.”
While the World Trade Organisation (WTO) shaped the existing rules governing trade, it has been slow off the mark when it comes to facilitating global data flows with new agreements. The waning power of the WTO combined with the rapid digitalisation of the global economy has meant that countries have taken the matter into their own hands.
Three trade-oriented countries – Chile, New Zealand and Singapore – signed a landmark digital free trade agreement in June 2020 called the Digital Economic Partnership Agreement (DEPA) to boost digital trade by agreeing to a common framework about data availability, locality and governance. With a shared understanding of rules governing data protection and open data, as well as cooperation in areas such as digital identities and e-invoicing to enable end-to-end digital trade, members have built a unified digital infrastructure to provide support and certainty to businesses.
Since then, the agreement has gained momentum, with other countries looking to reap the benefits of digital trade as they recover from the Covid-19 crisis. DEPA promises to diversify trade opportunities and provide greater certainty for exporters, “especially small and medium-sized businesses that are pursuing digital technology commercial opportunities abroad”, says a spokesperson for Canada’s Department for International Trade, which is currently in formal consultations about joining.
At first glance this is an unlikely alliance of countries: trade with the other two current member states constitutes just 1.3% of Chile’s total trade in services in 2019, 3.2% of New Zealand’s and as little as 1.1% of Singapore’s, according to WTO data.
But the three member states actually have a long history of cooperation that dates back to an agreement signed in 2005 based on a collective vision of free trade in goods, says Andrés Rebolledo, former Chilean minister for energy and dean of the Faculty of Administration and Business at SEK-Chile University.
“In fact, we are neighbours because we share the Pacific Ocean – if you go to the west here in Chile, the first country that you’ll get to is New Zealand,” he says. “Also, we are like-minded countries in terms of our approach regarding trade policy: we are small countries, we depend on the international floor and we have been negotiating free trade agreements for a long time.”
The globalisation backlash endangers digital trade
As digital services become an increasingly integral part of the global economy, trade agreements that facilitate global data flows are more important than ever. The outlook for digital free trade is blighted, however, by a widespread backlash against globalisation, which has led countries to erect more barriers to trade in goods and services in recent years.
Of the 50 countries in the OECD’s Digital Services Trade Restrictiveness Index, more than double the number of economies have increased barriers to digital trade in services since 2016 than have decreased them over that period.
“A couple of years ago, this agreement was important; today it is crucial because the pandemic has been a source of historic acceleration [of digital],” says Rebolledo. “But even though we are living in the middle of a global pandemic, we have at the same time more segmentation of the economy, more closed economies and more critics of globalisation.”
Rebolledo remains hopeful, however, that other countries – especially Latin American neighbours such as Costa Rica and Uruguay, where the economy relies heavily on services – will join in the future and that DEPA can act as a template for future digital free trade agreements.
For companies in these services-driven economies, agreements like DEPA offer huge economies of scale from sharing digital infrastructure, says Georgia Institute of Technology’s Mueller.
“These large cloud platforms make available very cheaply all kinds of services and applications and information technology,” he says, adding that there are also considerable benefits from removing requirements for data localisation. “There are enormous economies of scale involved in sharing data storage and data applications in cloud platforms that can serve very large regions or even the entire world.”
But economies looking to join the agreement will need to be aligned with the existing DEPA members in terms of digital regulation and infrastructure. While the agreement leaves a “fair amount of wiggle room” for countries to meet these requirements, its treatment of data protection creates a barrier for some, says Jeni Tennison, vice-president and chief strategy adviser at the Open Data Institute (ODI).
“DEPA does have some assumptions around the way in which we might think about managing data and who has sovereignty over data,” she says. “There are efforts around the world to look at going beyond an individual, rights-focused way of putting in place data protection and it might not stretch quite far enough to allow those different kinds of models.”
India, for example, is pioneering an approach to the protection of non-personal data that considers the rights of communities to have access to, and control of their communal data. A lack of provision for these kinds of data protection structures would make harmonising its digital ecosystem with the DEPA framework more challenging.
And, despite acknowledging the evident benefits of increased global data flows, Tennison cautions that digital trade is a subtle balancing act. “What’s important is not necessarily just opening up all flows,” she says, pointing to differing norms and expectations around the use of data. “When you don’t trust another country to respect the rights of your citizens or the national infrastructure of our data… you want to have some barriers in place.