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. This growth has led to paradigm shifts in production structures and the demand for skills in this industry.
Although Latin America has made significant headway on developing its digital ecosystem in recent years, it remains 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 to mobility 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 new state of affairs undoubtedly implies a need to adapt the rules of international trade, which originally were designed with trade in goods in an analog world. The COVID-19 pandemic has pushed economic digitization to 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. Those same three countries have now made history again.
On June 11, 2020, New Zealand, Chile, and Singapore signed the world’s first Digital Economy Partnership Agreement (DEPA) remotely, using digital signatures.
This agreement is a milestone in trade negotiation policy and the process of shaping 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 for further trade negotiations. As DEPA is open to other countries that wish to join, it represents an opportunity for Latin America and the Caribbean’s countries to become part of the digital agenda.
The agreement is a step forward from several more limited plurilateral 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 to uphold their commitment to international trade as 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 ever before, given the importance of the digital economy in the new post-COVID economic order and the efforts that many governments and companies will make towards digital transformation.
This agreement is excellent news for the global trading system, especially for countries that depend on international trade. It comes at a time when the digital transformation accelerates in industries such as online education, remote working, and e-commerce, but while countries experience a counter-productive increase in protectionism as part of the fight against the COVID-19 pandemic.
The DEPA’s main objective is to promote cooperation within the digital economy and establish a regulatory framework to encourage it. It also seeks to build trust in digital systems, ensure the secure flow of data, and encourage businesses, especially smaller ones, to take advantage of digitization opportunities.
DEPA also seeks to democratize the benefits of international trade through technological tools and the digitization of trade objects, which used to be physical goods. Now that the traded goods are digital, they are much cheaper to reproduce, store, and distribute globally. This means that anyone with a good idea, a cloud server, and an internet connection can access 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 for digitization.
It addresses critical issues 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, including a commitment 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 logistics technologies, such as last-mile deliveries and the use of drones and lockers to deliver and collect purchases. Its digital products approach maintains the commitments established in earlier agreements around the moratorium on applying customs tariffs to e-commerce. It also adds a cryptography standard that prohibits 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 provider to install servers within their territory to be able to operate.
The digital products that will benefit from the agreement include video and music streaming, software, e-books, video games, website hosting, data processing, internet maintenance and repair services, 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 areas where the 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 to operate, and new members will be able to join. The demonstration effect of the agreement will be one of its greatest virtues.
This agreement is a major opportunity for the countries of Latin America and the Caribbean. By joining DEPA, they stand to benefit from rules representing the new generation of digital free trade agreements, which will define tomorrow’s world.