Why Are Digital Trade Agreements on the Rise?
The global internet penetration rate is at 62.5 percent as of April 2022. In population terms, there are currently about five billion internet users worldwide. This supports the massive adoption of digital technologies in all industries and sectors worldwide, including trade.
Adopting digital technologies to solve capacity problems, like creating central databases, facilitating international trade, and providing seamless cross-border payment is now critical for international trade. These new and exciting solutions motivate countries, international organizations, and companies to establish digital trade and economy laws, rules, and regulations for a digital economy.
The Rise in Digital Economy Agreements
The rise in digital economies has also birthed Digital Economy Agreements (DEAs), a treaty that establishes digital trade rules and digital economy collaborations between two or more economies. DEAs provided another avenue to forge ahead with opening markets and ditch protectionism while addressing the rising demand for digital services.
One of the most notable DEAs was the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which entered into force on December 30th, 2018, for Australia, Japan, Malaysia, Brunei, New Zealand, and Singapore, with Vietnam and Peru joining the block in 2019. This CPTPP addressed e-commerce, data transfer and localization, and privacy issues under Article 14, boosting digital trade among the eleven countries that signed the pact.
Using the CPTPP as a guide, Singapore, New Zealand, and Chile signed the Digital Economy Partnership Agreement (DEPA) in June 2020. The deal covers digital identities, e-invoicing, paperless trade, Fintech and e-payments, personal data protection, open government data, cross-border data flows, innovation, and regulatory sandboxes.
Two months later, Singapore and Australia signed a DEA, upgrading the Singapore-Australia Free Trade Agreement (SAFTA) through a new Digital Economy chapter. This agreement covers data protection, paperless customs procedures, and e-invoicing while targeting lower costs in e-commerce.
Digital Trade Agreement in Free Trade Negotiations
Undoubtedly, Singapore became the champion for DEAs as it signed two more DEAs with the UK and Korea. The UK-Singapore Digital Economy Agreement (UKSDEA) is the first digitally focused trade agreement signed by a European nation.
They signed the deal in December 2021 to focus on significant areas of the digital economy, including data flows, artificial intelligence, fintech, digital identities, legal technology, electronic payments, paperless trading, cross-border data flows, and cryptography. This deal will also support the UK’s bid to join the CPTPP.
The Korea-Singapore Digital Partnership Agreement (KSDPA) was signed in the same month. This is Singapore’s first DEA signed with an Asian country and covers the same aspects as UKSDEA except for SME cooperation, a new feature to promote and create a network for small businesses in both countries.
Before the influx of these DEAs, the EU signed an Economic Partnership Agreement (EPA) with the Caribbean Forum (CARIFORUM) in 2008, which included an e-commerce chapter. Since then, the EU has proposed other ambitious digital trade addendum in all FTA negotiations, including zero customs duties on electronic transmissions, paperless trading, consumer protection against unsolicited direct marketing communications, data flows, and the prohibition of data localization requirements.
The digital economy represents 15.5 percent of the global world GDP with a net worth of $11.5 trillion and is continuing to expand, so countries and international organizations must have digital trade agreements that serve as a point of order for business conduct and facilitate trade activities.
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