The future of international trade negotiations is already here. It’s called the Digital Economy Partnership Agreement and was recently signed by three countries, including Chile. This landmark agreement seeks to establish global standards for the digital economy. It couldn’t have come at a better time, given how important digitization and Industry 4.0 will be in recovering from the current economic crisis.
Estimates of the digital economy’s size range from 4.5% to 15.5% of global GDP. Over the past 10 years, global exports of ICTs and digital services have grown at significantly higher rates than those of other services. In 2018, digital services exports accounted for 50% of the global total for this sector. Thisgrowthhasled toparadigm shifts in production structures andthe demand for skills in this industry.
Although Latin America has madesignificant headwayondeveloping its digital ecosystem in recent years,itremains in the middle of the field compared to other regions, scoring 49.92 on a scale of 0 to 100, ahead of Africa (35.05) and Asia Pacific (49.16), but behind Europe (71.06) and North America (80.85). However,due tomobility restrictions prompted by the COVID-19 health emergency,1.7 million people in Latin America have become new digital consumers over the last few weeks.
This newstate of affairsundoubtedlyimpliesa need to adapt the rules of international trade, which originallyweredesigned with trade in goods in an analog world. The COVID-19 pandemic has pushed economicdigitizationto dizzying speeds, making these changes more urgent than ever.
The birth of the Digital Economy Partnership Agreement
Twelve years ago, three countries pioneered the first trans-Pacific trade agreement, laying the foundations for what is now the Trans-Pacific Partnership (TPP-11), one of the few multinational efforts to agree on global rules for international trade.Thosesame three countries havenowmade historyagain.
On June 11, 2020,New Zealand, Chile, and Singaporesigned the world’s firstDigital Economy Partnership Agreement (DEPA)remotely, using digital signatures.
This agreement is a milestone in trade negotiation policy and theprocess ofshaping global rules for the new era of digital international trade. It is groundbreaking in fostering an integrated global digital economy with a vision for the future that lights the way forfurthertrade negotiations. As DEPA is open to other countriesthatwish to join, it represents an opportunity for Latin America and the Caribbean’s countriesto become part of the digital agenda.
The agreement is a step forward from several more limitedplurilateral attempts,such as the Joint Declaration of the World Trade Organization (WTO) and e-commerce negotiation initiatives in digital economy working groups within the Asia Pacific Economic Cooperation (APEC) forum and other international forums.
More important and more urgent than ever
DEPA couldn’t have come at a better time. The uncertainty caused by the COVID-19 crisis makes this the ideal moment for countries toupholdtheir commitment to international tradeas a driver of economic development and stress the importance of global rules and trade disciplines.
In other words, the agreement is more relevant and urgent than everbefore, given theimportanceof the digital economy in the new post-COVID economic order and the efforts that many governments and companies will maketowardsdigital transformation.
This agreement is excellent news for the global trading system, especially for countries that depend on international trade. Itcomesat a time when the digital transformationacceleratesin industries such as online education, remote working, and e-commerce, butwhilecountriesexperiencea counter-productive increase inprotectionismas part of the fight against the COVID-19 pandemic.
TheDEPA’smain objective is to promote cooperation within the digital economy and establish a regulatory frameworktoencourageit. It also seeks to build trust in digital systems, ensure the secure flow of data, and encourage businesses, especially smaller ones, to take advantage ofdigitizationopportunities.
DEPA also seekstodemocratizethe benefits of international trade through technological tools andthedigitizationoftradeobjects, which used to be physical goods. Now that the tradedgoodsare digital, they are much cheaper to reproduce, store, and distribute globally. This means that anyone with a good idea, a cloud server, and aninternet connectioncanaccess the global market.
A new era of global digital connectivity
The DEPA sets out clear rules that seek to increase interoperability between countries by creating opportunities fordigitization.
It addressescriticalissues by safeguarding fundamental principles on these matters. These include i) the use of electronic devices; ii) national treatment and the nondiscrimination of digital products; iii) the facilitation of the documentation of cross-border business, including e-invoicing and promoting electronic payment; iv) personal data protection; v) cybersecurity; vi) online consumer protection, includingacommitment to working toward eliminating unsolicited advertising messages (spam); vii) protection of secure digital identities; viii) an ethical governance framework for implementing artificial intelligence; ix)free data flows; and,x) addressing the digital divide and digital inclusion by ensuring access to an open internet.
It also includes commitments to share best practices for promoting and developing new logisticstechnologies, such as last-mile deliveries and the use of drones and lockers to deliver and collect purchases. Its digital productsapproachmaintains the commitments established in earlier agreements around the moratorium on applying customs tariffs to e-commerce. It also adds a cryptography standardthatprohibits countries from requesting keys or access codes when importing encrypted products.
It maintains the commitment to avoid the forced location of data by prohibiting parties from obliging a digital product or service providerto install servers within their territory to be able to operate.
The digital productsthat will benefit from the agreement include video and music streaming, software, e-books, videogames, website hosting, data processing,internet maintenance and repairservices, application development, and the Fintech industry.
A starting point
DEPA is clearly not the end of the digital journey but is instead an excellent starting point for multilateral rulemaking around the digital economy.
Issues that remain to be addressed include improving online privacy, security, and data governance; strengthening cybersecurity; and making headway on areaswherethe agreement has only established a roadmap for the future, such as artificial intelligence, open data, and digital identities.
We hope that the DEPA’s entry into force will proceed smoothly in each of the member countries. When two countries have ratified it, the agreement will begin tooperate,and new members will be able to join. The demonstration effect of the agreement will be one of its greatest virtues.
Thisagreementis a major opportunity for the countries of Latin America and the Caribbean. By joiningDEPA, they stand to benefit from rules representingthe new generation of digital free trade agreements, whichwill define tomorrow’s world.