digital economy

China Applies to Join DEPA

China Applies to Join DEPA

Trade watchers have had two important pieces of news this week. First, Regional Comprehensive Economic Partnership (RCEP) has enough members on board to bring the agreement into force on January 1, 2022. Note that the initial membership includes 10 of the 15 signatories: Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, and Vietnam. (The remaining members will become active participants 60 days after they have completed domestic level ratification procedures and submitted their letter to the ASEAN Secretariat.) Over all the years of negotiations and the time spent moving from substantial conclusion to signature to approval at the domestic level inside member governments, there has been repeated skepticism over whether or not RCEP would ever see the light of day. As a result, companies have been quite slow to get ready. With the actual launch less than 60 days away, it is time to focus. Firms should be rapidly preparing to use the agreement now. The second piece of trade news, however, was an even bigger bombshell. China officially asked to join the Digital Economy Partnership Agreement (DEPA). This agreement is only recently in force between the three members Chile, New Zealand and Singapore. DEPA was originally designed by these three small open economies as a way to build consistency in approaches to the digital economy. The idea was to create a series of “modules.” Each module covered a specific topic such as paperless trading or Artificial Intelligence (AI). Some modules, particularly those like paperless trading or non-discrimination against digital products, have become a more regular feature embedded in many different types of agreements, and have stronger, more legally binding language in DEPA. Other modules, especially those on new and evolving topics like AI or digital identities, were designed to encourage cooperation between members.

Trade and Tax in a Digital World

Trade and Tax in a Digital World

Neither trade nor tax are new issues. What is new are the types of challenges that digital trade poses to revenue collection. As the digital economy has grown significantly, governments have watched with increasing dismay as taxes have not been collected from a steeply growing volume of transactions. Fiscal pressures in the wake of pandemic spending have accelerated the quest to appropriately tax companies and purchases made in the digital or online environment. The rise of the digital economy has complicated the traditional tax environment. Firms can be located anywhere and provide goods and services online to suppliers, vendors and customers in places without any need for a physical presence. The digital economy allows firms to scale up substantially at often minimal direct costs, creating a small set of super firms generating outsized profits. Such technology or digital firms present tempting targets for cash-strapped governments looking for revenue. However, it is not just large firms that can take advantage of new ways to find customers. A vital aspect of the digital economy is how it enables even the smallest companies to engage in cross-border trade. Firms that might never have been tempted to trade outside their own villages are increasingly finding key markets halfway around the globe. In short, there are at least four important ways that the digital economy has affected traditional tax systems: by allowing firms to compete in markets without a physical presence; by the proliferation of approaches, mostly used by large firms, to more carefully manage tax; companies that can operate with no or minimal presence; and by the participation in cross-border trade by companies previously not engaged in such transactions. Our latest paper, published this week with the Hinrich Foundation as part of the ongoing series on digital trade issues in Asia, highlights some of the current and upcoming issues of digital tax under both direct and indirect tax collection schemes.

Repost: Data is NOT Oil

Repost: Data is NOT Oil

Last night, I participated in another webinar on data. Multiple speakers used the term “data is the new oil.” It is not. I thought it might be useful to republish this piece from April 2019 on why data should not be compared to anything, because faulty analogies lead to flawed policy responses. Data is data. Not oil. Not, as the piece states, avocados or pears, not oxygen or fuel.…[Reposted content] He was specifically referring to a saying that “data is the new oil.” Such a description has become commonplace, especially among government officials. There is a reason why this description resonates. Oil helps lubricate the economy. Data, in a digital world, does something similar. Oil needs to be processed. On its own, oil has little utility. Data, in form of raw bits and pieces of information, has limited use. But as Søndergaard suggested, data is not like oil. For one thing, oil doesn’t go anywhere. It sits in the ground until it is brought up and used. It can be used all at once or just some at a time while the rest remains waiting. Oil can be stored forever (or at least for a very long time) without significant problems. Data, by contrast, is like an avocado. It has a clearly defined shelf-life. Data collected and used too early is pointless. Data harvested too late is often of no use at all.

Digital Trade in the Asia-Pacific: 8 Issues for 2021 and Beyond

Digital Trade in the Asia-Pacific: 8 Issues for 2021 and Beyond

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.

Guest Post: Unraveling the Complexities of Modern Trade

Guest Post: Unraveling the Complexities of Modern Trade

More recently still, trade has branched out into non-core areas such as sustainability. The evolution of trade deals is attempting to future-proof FTAs to better accommodate the complexities of digital transformation, the ever-increasing importance of services trade, and handle similar modern-day developments. There is also the need to agree on specific features such as rules of origin, and the streamlining and/or standardisation of non-tariff measures (as well as removal of non-tariff barriers). All of which are imperative to maintain, nourish and grow supply chains. But with such ambition comes complexity, and with complexity comes delay and disagreement. The current trade policy mix is a challenging one: essentially a struggle between protectionism and free trade, and a battle between nation state and the multilateral trade environment, but also a chance to use FTAs as mechanisms to structure sustainable targets and agree broader policy direction between partners. How these trade-offs untangle and become conducive to an ever flatter, more connected world is uncertain. There is also uncertainty regarding what a new or revised set of multilateral and regional agreements and bodies may look like, and how quickly these can be agreed upon.