Published 07 January 2021
Since the public launch of the World Wide Web in 1995, trade has increasingly gone digital. While firms are innovating at a rapid clip to design, develop and deploy digitally-enabled goods and services, governments have struggled to keep up. For the first decades after the launch of the internet, regulations, rules and legal laws to manage digital-enabled trade were limited. However, as the digital economy has increasingly come to represent a greater and greater share of the economy, with compounding growth rates in digital trade, the situation has become less satisfactory.
In the earliest days, the digital economy flourished with extremely limited regulatory oversight. While this might sound like an ideal environment for companies, most prefer to operate within a set of clearly defined basic rules. The alternative can be sudden and unanticipated regulatory and legal changes that can upend business models overnight.
As the portions of the economy driven by digital technology have continued to expand and as digital connectivity has increased, governments have increasingly been grappling with the appropriate ways to allow digital trade to grow while restraining harms that might flow to consumers and businesses. Effective management of the regulatory and policy environment to facilitate digital trade will become one of the most important aspects of trade policy in 2021 and beyond.
The Covid-19 pandemic and associated lockdowns and trade disruption have up-ended many longstanding business models. Firms are rapidly shifting to develop or expand digital capabilities to manage highly altered supply and demand pressures. The adjustment to digital tools applies to both large and small firms and has increasingly filtered to include citizens around the globe. An online presence can make the difference for companies between survival and extinction.
Despite the growing importance of digital trade, the ability of governments to tackle a range of issues of relevance to managing the online environment still lags behind the speed of innovation for firms. Domestic-level regulatory and legal adjustments to better accommodate digital trade can be complicated. Negotiations between governments to ensure greater consistency in policy frameworks are often time-consuming to complete. By the time policy settings adjust, the commercial environment could appear quite different.
Headed into 2021 and beyond, there are at least eight topics that are likely to be on the radar for government officials working on digital trade. The Asian Trade Centre, with generous support from the Hinrich Foundation, has launched a series of papers, Asia in the Digital Economy, to more carefully examine new and emerging issues in digital trade in 2021.
The first paper, available in full here, outlines eight issues rapidly rising to the top of government agendas in the region:
1) the growing rise of digital services;
2) the application of tax to cross-border digital goods and services;
3) the role of cybersecurity and data protection uneasiness;
4) a rise in concerns of digital or data sovereignty;
5) renewed emphasis on competition policy or anti-trust policies as applied to the digital world;
6) challenges managing digital payments in cross-border settings;
7) the growth of new technologies and applications that will increasingly challenge regulatory environments; and
8) how the spread of digital trade facilitates or hinders the growth and development of the smallest firms in Asia.
The paper does not suggest solutions to this range of challenges. Instead, it highlights these topics to generate greater debate and discussions between firms and governments across the region. Effective and efficient regulatory policies can support continuing economic growth in the digital economy. Poorly managed or badly implemented policies, by contrast, can easily disrupt the continuing growth of digital trade. In particular, problematic policies and regulations can make it difficult or impossible for the smallest firms in Asia to continue to share in the fastest growing sectors of the economy.
Given the overwhelming importance of small firms to every country in Asia, failure to create supportive policies for the micro, small and medium-sized enterprises (MSMEs) will impede the region’s attempt to create sustainable and inclusive trade for the future.
Digital trade is the future of trade. Digital serves as the “connective tissue” increasingly running between and across sectors of all kinds. It binds countries together. Done well, it allows the smallest firm the opportunity to become a “micro-multinational” with customers and suppliers around the globe. Done poorly, digital policies can trap firms and customers into sub-standard outcomes.
We are delighted to embark on this year-long journey to examine ways that governments could more effectively tackle creating policy outcomes suitable for a digital world. Future papers will explore many of these topics in greater detail, including electronic payments, digital taxation and fostering inclusive digital growth and economic development in the region.
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Author
Deborah Elms
Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).
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