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Talking Trade blog

China applies to join DEPA


Published 04 November 2021

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. 

The goal was to craft an agreement that would drive policy consistency in multiple ways.  It would appeal to and attract a wide range of potential new members to join DEPA.  It could form the basis for more ambitious commitments, which could be anchored in ongoing or future agreements, like new free trade agreements (FTAs) or upgraded FTA exercises.  And it would encourage greater policy and regulatory cooperation between members on new topics.

The signing of DEPA in mid 2020 coincided with the disruption caused by Covid-19, limiting the early impact of the agreement.  Changes in Chile’s government also delayed the entry into force of the deal for longer than anticipated.

The submission of China’s application to join DEPA, however, is likely to renew interest among other potential participants about acceding to this agreement.  DEPA modules have not, thus far, been embedded wholesale into other trade arrangements although the momentum for doing so might be more compelling as the agreement itself expands. 

DEPA identified a number of key digital trade topics that have continued to gain traction, such as electronic payments, personal data protection, digital identities, online consumer protection, fintech, and open government data. 

What DEPA does not have is a clearly defined policy on accession.  Instead, Article 16.4 notes that the agreement is open to accession on terms to be agreed among the parties.  In fact, DEPA has already launched its first accession working party.  Last month, Singapore began chairing discussions among the members and South Korea. 

The Korean application to join DEPA appears to have been managed quite quickly.  China’s interest is likely to be more challenging.

As members start to more concretely flesh out the terms and conditions for accession, it will be important to think hard about current and future potential applicants. If the original intention of getting the agreement to expand is still relevant, accession criteria need to continue to encourage new applications, including from a range of possible members that may be more or less ready to sign onto highly ambitious, potentially binding commitments on digital rules.

Members will also have to assess whether new members like China are genuinely prepared to follow DEPA provisions.  This is always true for accession processes, but may be even more pertinent in a deal like DEPA that is built around shared norm and rule creation for the future.  Promising to adhere to a set of clearly defined rules is one thing.  Becoming part of a community crafting new regulations may be something else entirely.

The Chinese application is a particular issue as many current digital policies outlined by China may be seen as going in different directions from DEPA.  Two DEPA modules, in particular, have been flagged as most problematic: Article 4.3 on cross border transfer of information and Article 4.4 on location of computing facilities. 

As SMU Professor Henry Gao has noted, however, Annex 14.A1 carves both provisions out of dispute settlement.  Annex 1 goes further to say that both modules “do not create any rights or obligations between or among the Parties under this Agreement.”  Hence, it is certainly possible for China (or any other potential applicant) to join DEPA and restrict cross border flows of data or require local data hosting.

This does not mean that DEPA is without value.  Indeed, in a fast moving digital space, cooperation commitments can be quite useful in providing platforms for the development of common or consistent policies and regulatory settings.   

Since the biggest risks for the digital economy are currently coming from inconsistent, contradictory or incompatible policies, any effort to consolidate rules around similar frameworks should be welcomed.  There are, outside of DEPA, limited arenas for managing these challenges. 

The World Trade Organization (WTO) has been engaged in ongoing negotiations over the Joint Statement Initiative (JSI) on Electronic Commerce.  Many had hoped that the 86 WTO members participating in the effort would be able to announce a package at the upcoming WTO ministerial meeting.  However, disagreements among members over the appropriate level of ambition and a large agenda has stymied efforts to reach outcomes on most of the initiatives at this time.   

Other trade agreements include different types of digital commitments, including RCEP (where digital rules exist, but are woefully lacking), the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the US-Mexico-Canada (USMCA) FTA, or the Singapore’s Digital Economic Agreements (DEA) in place already with Australia and coming soon with the UK and Korea.

DEPA represents an additional, important opportunity to find future pathways to support the digital economy and build inclusive policies.  New member applications are therefore important and should be welcomed, even if the process of working with broader groups of members becomes difficult.

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Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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