The Digital Economy Partnership Agreement (DEPA) was concluded last week between Chile, New Zealand and Singapore. It represents a new type of trade agreement—one aimed at facilitating trade and creating a framework for the digital economy.
As our parallel Talking Trade post today outlines, governments have been working on multiple options to try to craft rules to govern the digital world. Solutions range from unilateral to multilateral approaches.
The DEPA sits in the middle. It sets out a series of modules covering a range of topics of relevance to firms that trade digital services, ship goods across borders via e-commerce, or are otherwise involved in the digital and technology space.
These modules are meant to be building blocks. Countries could opt to dock directly onto the DEPA, expanding the agreement with new members. Or governments could decide to pick up and use modules, in whole or in part, in various settings. These include slotting them directly into other trade agreements or opting to align domestic policies to DEPA.
The significance of DEPA does not sit with the current three members, who have largely already agreed to uphold the same commitments and principles in the agreement under their Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) membership.
Instead, DEPA matters if and when more governments agree to use the modules or align domestic policy with its framework and structure.
The spread of DEPA is key—if non-members who are considering problematic rules on the digital economy could be encouraged to join, the agreement will be seen as a critical turning point for policy on digital issues.
The specific modular elements of the DEPA include:
· Business and Trade Facilitation
· Treatment of Digital Products and Related Issues
· Emerging Trends and Technologies
· Innovation and the Digital Economy
· Small and Medium Enterprises Cooperation
Negotiators from Chile, New Zealand and Singapore had to grapple with how to appropriately regulate digital trade while ensuring that new technologies can continue to flourish. As the first digital-only deal, many provisions remain relatively tentative, with commitments for future work and consultation as the framework gets developed further.
The modules of the agreement that pick up and refine existing rules, particularly drawn from the CPTPP, are likely to be of most use for companies.
Module 2 on business and trade facilitation has some helpful elements, including allowing trade documentation to be paperless and putting into place legal frameworks at the domestic level to allow electronic submissions of things like certificates of origin or other relevant import and export documentation as well as sanitary and phytosanitary (SPS) certificates (2.2). Electronic invoicing is meant to be encouraged and made interoperable (2.5)
The module also includes specific rules on express shipments and clearance times (2.6). It pledges deeper cooperation on other new approaches for logistics (2.4).
It is especially pleasing to see electronic payments (2.7) directly added to the DEPA frameworks. Companies cannot engage in cross-border trade in the digital economy if they cannot be paid in a manner that is efficient and cost-effective. The specifics of the module will need to be developed further in the future, as most of the current language is aspirational (“shall endeavor” at best).
Module 3 promises that digital products will not face customs duties in DEPA countries (3.2), with firms experiencing fewer issues of discrimination, as national treatment is guaranteed (3.3). These are important promises for firms, as they increase certainty and reduce risk.
DEPA members upheld their existing CPTPP commitments to allow data to flow freely across borders (4.3) and to prohibit data rules requiring local hosting of data (4.4) with improved clarity on the exceptions to both.
The data module has a section on the importance of personal information protection (4.2) with a basic requirement to have a framework in place at the domestic level that matches a set of broad principles outlined in DEPA.
The modules on trust, as perhaps might be anticipated, are probably important to include, but difficult to draft. The DEPA, to use one example, recognizes that cybersecurity is critically important, but does not go very far (5.1). It largely obligates governments to cooperate with one another.
The module on business trust includes two elements drawn from CPTPP, including the promise to stop unsolicited messages or “spam” (6.2) and to provide online consumer protection (6.3).
Module 8 on emerging trends and technologies highlights a range of important topics that will need to be considered carefully by governments, such as financial technology or “fintech” and artificial intelligence or “AI.” The innovation module (section 9), similarly highlights a range of areas that require cooperation in the future to continue to foster greater innovation, such as the use of public domains and open government data.
The deal is to be run by a series of committees (Module 12) and includes a long list of exceptions, including digital taxation (13.5), and a wide range of prudential carve outs and financial services exceptions. Members agreed to some specific elements of transparency (Module 14) that also replicates many CPTPP provisions.
Finally, the agreement contains a dispute settlement mechanism (Module 15). But most of the working elements of such a system remain to be developed or, if completed, are included in annex texts which have not yet been released (15.3).
It may be the case that some aspect or provision in the DEPA will come to have outsized importance going forward in ways that cannot be anticipated today. As an example, the rules on non-discrimination of digital products (3.3) could be of critical importance to firms as the digital economy continues to expand into areas not yet imagined.
In all, the DEPA represents a promising start to creating harmonized frameworks for the digital economy. It contains flexibility to allow members to adapt the rules to local conditions, when clearly warranted, and should provide conditions for greater adoption of the modules by other members.
Making DEPA successful in the long run, however, will require businesses to continue to stay engaged with governments to ensure that new rules and regulations that are slotted into the deal in the future remain relevant and useful.
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore***