A US-led Indo-Pacific digital trade deal? Part I

A US-led Indo-Pacific digital trade deal? Part I

Claude Barfield

The Biden administration promised last October it would codify an Indo-Pacific strategy by early 2022 and touted a regional digital trade deal as a key element of its emergent Indo-Pacific reengagement. The idea of a US-led Indo-Pacific agreement has wide bipartisan support in Congress and the corporate community, but there are major domestic and international challenges to the successful achievement of this goal. In this and future posts, we will explore some of the benefits, challenges, and limitations of what the US is likely to offer to potential Indo-Pacific partners.

History and background

Ironically, it was the United States that led the way for the introduction of e-commerce and digital trade rules into trade pacts when it pioneered such rules in the Trans-Pacific Partnership (TPP). In an act of supreme folly, President Donald Trump withdrew the US from the TPP in 2017, but the other 11 members, led by Japan, reconstituted the agreement as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which came into force in December 2018. The digital trade disciplines were identical in the two agreements and followed the same basic rules:

No future tariffs on e-commerce data flows;

Free flow of cross-border data;

Prohibition of data localization;

Prohibition of requirements to transfer software or source codes as a condition of doing business in a local economy; and

A requirement for privacy protection, though the details are left to individual TPP member states.

In 2018, the Trump administration completed negotiations to update the original North American Free Trade Agreement (NAFTA) with Mexico and Canada. The new NAFTA’s e-commerce provisions largely tracked the TPP rules, with some tightening of language and obligations (particularly regarding algorithms and financial services).

A second regional trade pact, the Regional Comprehensive Economic Partnership (RCEP), which came into force this past December, also contains digital provisions such as prohibitions on data customs duties for digital products, privacy protections, and restrictions on data localization. The e-commerce chapter in RCEP, however, is not subject to dispute settlement, reflecting China’s persistent demands for “digital sovereignty.”

The landscape of existing Indo-Pacific digital trade agreements

As noted above, the CPTPP and the RCEP both contain e-commerce chapters, though they differ greatly in depth and enforceability. In addition, the updated NAFTA agreement among the Canada, Mexico, and the US contains the most advanced digital trade provisions of any agreement at hand. Finally, there is also a tripartite digital trade pact among Chile, New Zealand, and Singapore — signed in September 2020.

In terms of the larger regional landscape, there are 11 nations in the CPTPP: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. In addition, it should be noted that a number of nations have applied for or are considering CPTPP membership, including China, Ecuador, South Korea, Taiwan, Thailand, and the United Kingdom. Finally, there are 15 nations in RCEP: Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam.

The bottom line

With regard to the substantive goals of US digital trade, there is a considerable subgroup of Indo-Pacific nations that already have agreed to advanced digital rules, including the CPTPP nations. Moreover, Mexico and Canada have signed up for even further disciplines in the new NAFTA. Thus, the digital policy frontiers will seemingly be found in the RCEP nations that are not also members of the CPTPP. But actually, as a follow-up piece will examine, the most formidable challenges come from internal trade divisions in the US and, most particularly, Congress’ failure thus far to grant the president new negotiating authority for trade agreements.

Courtesy: (AEI.org)

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